Intier Automotive (IAIA) 6-K Notice of Annual and Special Meeting of Shareholders

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

        Intier Automotive Inc. management is responsible for the preparation and presentation of the consolidated financial statements and all the information in this Annual Report. The consolidated financial statements were prepared by management in accordance with accounting principles generally accepted in Canada. Financial statements include certain amounts based on estimates and judgements. Management has determined such amounts on a reasonable basis designed to ensure that the consolidated financial statements are presented fairly, in all material respects. Financial information presented elsewhere in this Annual Report has been prepared by management to ensure consistency with that in the consolidated financial statements. The consolidated financial statements have been reviewed by the Audit Committee and approved by the Board of Directors of Intier Automotive Inc.

        Management is responsible for the development and maintenance of systems of internal accounting and administrative cost controls of high quality, consistent with reasonable cost. Such systems are designed to provide reasonable assurance that the financial information is accurate, relevant and reliable and that the Company's assets are appropriately accounted for and adequately safeguarded.

        The Company's Audit Committee is appointed by its Board of Directors annually and is comprised solely of outside directors. The Committee meets periodically with management, as well as the independent auditors, to satisfy itself that each is properly discharging its responsibilities, to review the consolidated financial statements and the independent auditors' report and to discuss significant financial reporting issues and auditing matters. The Audit Committee reports its findings to the Board of Directors for consideration when approving the consolidated financial statements for issuance to the shareholders.

        The consolidated financial statements have been audited by Ernst & Young LLP, the independent auditors, in accordance with auditing standards generally accepted in Canada and the United States on behalf of the shareholders. The Auditors' Report outlines the nature of their examination and their opinion to the consolidated financial statements of the Company. The independent auditors have full and unrestricted access to the Audit Committee.

Donald J. Walker (Signature)	Michael E. McCarthy (Signature)
DONALD J. WALKER President and Chief Executive Officer	MICHAEL E. MCCARTHY Executive Vice-President and Chief Financial Officer

Newmarket, Canada
February 13, 2003

AUDITORS' REPORT

To the Shareholders of Intier Automotive Inc.

        We have audited the consolidated balance sheets of Intier Automotive Inc. as at December 31, 2002 and 2001 and the consolidated statements of income, retained earnings and Magna's net investment and cash flows for each of the years in the three-year period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with Canadian and United States 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 December 31, 2002 and 2001 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2002 in accordance with Canadian generally accepted accounting principles.

        The Company changed its method of accounting for goodwill and impairment of long-lived assets as described in note 2.

ERNST & YOUNG LLP
Chartered Accountants

Toronto, Canada
February 13, 2003

SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

        The consolidated financial statements have been prepared in U.S. dollars following Canadian generally accepted accounting principles ("Canadian GAAP"). These policies are also in conformity, in all material respects, with United States generally accepted accounting principles ("U.S. GAAP") except as described in note 23 to the consolidated financial statements.

PRINCIPLES OF CONSOLIDATION

        The comparative consolidated balance sheet as at December 31, 2001 gives effect to the corporate reorganization which was completed in August 2001 whereby Intier Automotive Inc. (the "Company") acquired from its parent company, Magna International Inc. ("Magna"), certain operating divisions, subsidiaries, jointly controlled entities and investments directly or indirectly under the control of Magna. In exchange for the above net assets, the Company issued 42,751,938 Class B Shares of the Company and 2,250,000 Convertible Series Preferred Shares to Magna.

        The consolidated financial statements prior to August 1, 2001 present the historic combined results of operations and cash flows of the assets and liabilities reorganized under the Company on a carve out basis from Magna. To give effect to the continuity of Magna's interest in the assets and liabilities of the Company, all the assets and liabilities have been recorded in these consolidated financial statements at Magna's book values except for assets under capital leases related to the distribution of land and buildings by the Company to certain real estate subsidiaries of Magna during the year ended December 31, 1998.

        The Company was formed to hold and operate the interiors and closures businesses owned by Magna and its subsidiaries. The assets and liabilities recognized under the Company include the following businesses:

Interior Systems

        These businesses engineer, develop and produce complete seat systems, seat tracks, seat frames, integrated child safety seats and other seating components, cockpit modules, instrument panels, consoles, glove boxes, door modules, door trim panels, package trays, overhead systems, sun visors, acoustics, automotive carpet, interior panels and other interior garnish trim and components. This group also provides expertise and services for its OEM customers including assembly and sequencing, full vehicle process engineering and integrated interior vehicle safety systems.

Closure Systems

        These businesses engineer, develop, produce and assemble a multitude of closure, latching and power driven door systems. Products include complete door systems, power liftgates and power sliding doors, window regulators, electronic latching systems, wiper systems and electrical motors.

        The comparative information prior to August 1, 2001 reflects financial statements which present the consolidated financial position, results of operations, changes in Magna's net investment and cash flows of the Company as if it had operated as a stand-alone entity subject to Magna's control. Certain of the expenses presented in these consolidated financial statements represent intercompany allocations and management estimates of the cost of services provided by Magna. These allocations and estimates are considered by management to be the best available approximation of the expenses that the Company would have incurred had it operated on a stand-alone basis over the periods presented.

        Interest expense, as presented in these consolidated financial statements, includes interest on external debt and amounts due to Magna (included in Magna's net investment). Magna's net investment, which includes both debt and equity components, comprises the accumulated earnings of the Company, contributions by Magna less distributions to Magna and the currency translation adjustment.

        Income taxes for the Company in the comparative period prior to August 1, 2001 have been recorded at statutory rates based on income before income taxes and minority interest as reported in the consolidated statements of income as though the Company was a separate tax paying entity. Income taxes payable in respect of historically separate tax paying legal entities have been presented as a current liability in the consolidated balance sheets in the comparable period. Income taxes payable in respect of the components which were not historically separate tax paying legal entities have been included in Magna's net investment. Future income taxes have been presented in the consolidated balance sheets on the basis of temporary differences between the financial reporting and tax bases of the assets and liabilities of separate tax paying legal entities.

        As a result of the basis of presentation described above, the comparative consolidated statements of income may not necessarily be indicative of the revenues and expenses that would have resulted had the Company operated as a stand-alone entity prior to August 1, 2001.

        The Company's subsidiaries are included in these consolidated financial statements using the purchase method of accounting from the date they were acquired by Magna. All significant intercompany balances and transactions have been eliminated.

        The Company proportionately consolidates its interests in jointly controlled operations.

FOREIGN EXCHANGE

        Assets and liabilities of the Company's operations having a functional currency other than the U.S. dollar are translated into U.S. dollars using the exchange rate in effect at the year end and revenues and expenses are translated at the average rate during the year. Exchange gains or losses on translation of the Company's net equity investment in these operations are deferred as a separate component of shareholders' equity.

        The appropriate amounts of exchange gains or losses accumulated in the separate component of shareholders' equity are reflected in income when there is a reduction in the Company's net investment in the operations that gave rise to such exchange gains and losses.

        Foreign exchange gains and losses on transactions occurring in a currency other than an operation's functional currency are reflected in income except for gains and losses on foreign exchange contracts used to hedge specific future commitments in foreign currencies. Gains and losses on these contracts are accounted for as a component of the related hedged transaction. In addition, gains and losses from foreign denominated debt designated as a hedge on the Company's net investments in foreign operations are not included in income, but are shown in the currency translation account.

USE OF ESTIMATES

        The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

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

INVENTORIES

        Inventories are valued at the lower of cost and net realizable value, with cost being determined substantially on a first-in, first-out basis. Cost includes the cost of materials plus direct labour applied to the product and the applicable share of manufacturing overhead.

INVESTMENTS

        Investments in which the Company has significant influence are accounted for on the equity basis.

FIXED ASSETS

        Fixed assets are recorded at historical cost, which includes acquisition and development costs less related investment tax credits. Development costs include direct construction costs, interest capitalized on construction in progress and land under development and indirect costs wholly attributable to development.

        Depreciation is provided on a straight-line basis over the estimated useful lives of fixed assets at annual rates of 2¹/2% to 5% for buildings, 7% to 10% for general purpose equipment and 10% to 30% for special purpose equipment. Assets under capital leases are amortized over the respective lease terms.

        Costs incurred to establish new facilities, which require substantial time to reach commercial production capability, are expensed as incurred.

IMPAIRMENT OF LONG-LIVED ASSETS

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

        If the sum of the future cash flows expected to result from the asset, undiscounted and without interest charges, is less than the reported value of the asset, an asset impairment must be recognized in the financial statements. The amount of impairment to be recognized is calculated by subtracting the fair value of the asset from the reported value of the asset. Discounted cash flows are used to measure fair value.

GOODWILL

        Goodwill represents the excess of the purchase price of the Company's interest in subsidiary companies over the fair value of the underlying net identifiable assets arising on acquisitions. The Company reviews the valuation of goodwill on an annual basis. In doing so, the Company evaluates whether there has been an impairment in the value of goodwill based on a comparison of the fair value of the reporting unit to the underlying carrying value of the reporting unit's net assets, including goodwill. Discounted future cash flows are used to determine the fair value of the reporting unit.

REVENUE RECOGNITION

        Revenue from the sale of manufactured products is recognized when the price is fixed or determinable, collectibility is reasonably assured and upon shipment to (or receipt by customers depending on contractual terms), and acceptance by, customers.

        Revenue from separately priced engineering service and tooling contracts are recognized on a percentage of completion basis.

        Revenue and cost of sales are presented on a gross basis in the consolidated statements of income where the Company is acting as principal and is subject to significant risks and rewards in connection with the process of bringing the product to its final state and in the post sale dealings with its customers. Otherwise, components of revenues and related costs are presented on a net basis.

PREPRODUCTION COSTS RELATED TO LONG-TERM SUPPLY AGREEMENTS

        Costs incurred (net of customer subsidies) related to design and engineering, which are reimbursed as part of subsequent related parts production piece price amounts, are expensed as incurred unless a contractual guarantee for reimbursement exists.

        Costs incurred (net of customer subsidies) related to design and development costs for moulds, dies and other tools that the Company does not own (and that will be used in, and reimbursed as part of the piece price amounts for subsequent related parts production) are expensed as incurred unless the supply agreement provides a contractual guarantee for reimbursement or the non-cancellable right to use the moulds, dies and other tools during the supply agreement.

GOVERNMENT FINANCING

        The Company makes periodic applications for financial assistance under available government assistance programs in the various jurisdictions in which the Company operates. Grants relating to capital expenditures are reflected as a reduction of the cost of the related assets. Grants and tax credits relating to current operating expenditures are generally recorded as a reduction of expense at the time the eligible expenses are incurred. In the case of certain foreign subsidiaries, the Company receives tax super allowances which are accounted for as a reduction of income tax expense. The Company also receives loans which are recorded as liabilities in amounts equal to the cash received.

RESEARCH AND DEVELOPMENT

        The Company carries on various applied research and development programs, certain of which are financially assisted by governments or by customers of the Company. Funding received is accounted for using the cost reduction approach. Research costs are expensed as incurred.

INCOME TAXES

        The Company follows the liability method of tax allocation for accounting for income taxes. Under the liability method of tax allocation, future tax assets and liabilities are determined based on differences between the financial reporting carrying value and the tax cost bases of assets and liabilities and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse.

EMPLOYEE BENEFIT PLANS

        The Company accrues its obligations under employee benefit plans and the related costs, net of plan assets. The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro rated on service and management's best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs. For the purposes 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 net actuarial gain (loss) is amortized over the average remaining service period of active employees.

        The cost of providing benefits through defined contribution pension plans is charged to earnings in the period in respect of which contributions become payable.

STOCK-BASED COMPENSATION

        No compensation expense is recognized for stock options granted to employees under the Company's Incentive Stock Option Plan as they are accounted for using the intrinsic value method. Stock options granted to non-employees under the Company's Incentive Stock Option Plan, are accounted for under the fair value method and are expensed as the options vest. Consideration received on the exercise of stock options is credited to capital stock. The dilutive impact of stock option grants is factored into the Company's diluted reported earnings per share.

EARNINGS PER CLASS A SUBORDINATE VOTING OR CLASS B SHARE

        Basic earnings per Class A Subordinate Voting or Class B Share are calculated on net income less financing charges on the Convertible Series Preferred Shares using the weighted average number of Class A Subordinate Voting and Class B Shares outstanding during the year.

        The Company uses the treasury stock method in computing diluted earnings per share. Under the treasury stock method, diluted earnings per Class A Subordinate Voting or Class B Share are calculated on the weighted average number of Class A Subordinate Voting and Class B Shares that would have been outstanding during the year had all the dilutive options and Convertible Series Preferred Shares been exercised or converted into Class A Subordinate Voting Shares at the beginning of the year, or date of issuance, if later. The proceeds from the exercise of options are assumed to be used to purchase Class A Subordinate Voting Shares at the average market price during the period. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included in the denominator of the diluted earnings per share computation.

CONVERTIBLE SERIES PREFERRED SHARES

        For the purposes of accounting for the Convertible Series Preferred Shares, three key attributes of these shares were valued as of their date of issuance and are presented separately in the Company's consolidated financial statements. These three key attributes are:

i)

The retraction of the Convertible Series Preferred Shares at their carrying value by the holders;



ii)

The non-cumulative cash dividend payable in respect of the Convertible Series Preferred Shares; and



iii)

The ability to convert the Convertible Series Preferred Shares into Class A Subordinate Voting Shares at a fixed price.

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

        The non-cumulative dividend, for reasons indicated above, is not considered debt-related. However, because holders of the Convertible Series Preferred Shares expect to receive dividends and it was the Company's expectation, at the date of issuance, to pay dividends, there is a value to the expected stream of dividend payments. The net present value of this expected dividend stream has, therefore, been presented as equity. As dividends are declared, a systematically calculated portion of the dividend is shown as a return of capital and is deducted from the amount presented as equity. The dividends on the Convertible Series Preferred Shares as presented in the consolidated statements of income and retained earnings and Magna's net investment reflect the actual dividend declared net of the amount considered a return on capital.

        The third attribute, the conversion feature, is similar to a stock warrant in that it provides holders with the option to exchange their Convertible Series Preferred Shares for Class A Subordinate Voting Shares at a fixed price. The residual approach was used to value this attribute and this amount is classified as equity.

COMPARATIVE FIGURES

        Certain of the prior year's figures have been reclassified to conform to the current year's presentation.

CONSOLIDATED BALANCE SHEETS

			As at December 31,
(U.S. dollars in millions)		Note	2002		2001
Assets
Current assets:
	Cash and cash equivalents		$	241.3	$	77.1
	Accounts receivable	21		579.9		574.3
	Inventories	7		261.7		240.9
	Prepaid expenses and other			27.8		23.6
	Income taxes receivable	10		5.5		—
				1,116.2		915.9
Fixed assets,net		8, 9		478.1		424.0
Goodwill		9		100.7		132.5
Future tax assets		10		75.5		96.0
Other assets		6		11.3		11.0
			$	1,781.8	$	1,579.4
Liabilities and Shareholders' Equity
Current liabilities:
	Bank indebtedness	11	$	48.6	$	46.0
	Accounts payable	21		658.0		527.6
	Accrued salaries and wages			74.3		53.7
	Other accrued liabilities	5		50.2		49.6
	Income taxes payable	10		—		1.8
	Long-term debt due within one year	11		4.2		6.8
				835.3		685.5
Long-term debt		11, 21		31.8		30.6
Other long-term liabilities		12		25.6		22.1
Convertible Series Preferred Shares		13		206.2		194.6
Future tax liabilities		10		38.0		35.0
Minority interest				0.9		1.7
Shareholders'equity:
	Convertible Series Preferred Shares	13		22.0		31.4
	Class A Subordinate Voting Shares	14		71.8		71.7
	Class B Shares	14		495.8		495.8
	Retained earnings			17.2		15.9
	Currency translation adjustment	17		37.2		(4.9	)
				644.0		609.9
			$	1,781.8	$	1,579.4

Commitments and contingencies (notes 11 and 22)
The accompanying notes are an integral part of these consolidated financial statements.

On behalf of the Board:
Lawrence Worrall	Neil G. Davis
(Signature)	(Signature)
LAWRENCE WORRALL Director	NEIL G. DAVIS Director

CONSOLIDATED STATEMENTS OF INCOME, RETAINED EARNINGS AND MAGNA'S NET INVESTMENT

			Years ended December 31,
(U.S. dollars in millions, except per share figures and numbers of shares)		Note	2002			2001			2000
Sales		21	$	3,861.6		$	3,268.1		$	2,970.9
Cost of goods sold		21		3,374.9			2,861.6			2,605.5
Depreciation and amortization		9		88.5			88.0			86.1
Selling, general and administrative				197.6			168.1			156.0
Affiliation and social fees		21		55.3			48.8			29.8
Other charges		9		23.6			—			—
Operating income				121.7			101.6			93.5
Interest (income) expense, net		11, 21		(1.5	)		16.2			27.4
Amortization of discount on Convertible Series Preferred Shares		13, 21		11.6			4.8			—
Equity (income) loss		6		(0.6	)		0.4			0.7
Income before income taxes and minority interest				112.2			80.2			65.4
Income taxes		10		64.5			40.7			30.9
Minority interest				(0.9	)		(0.4	)		(0.2	)
Net income			$	48.6		$	39.9		$	34.7
Financing charge on Convertible Series Preferred Shares		13, 21		1.9			0.9			—
Net income attributable to Class A Subordinate Voting and Class B Shares				46.7			39.0			34.7
Retained earnings and Magna's net investment, beginning of year				15.9			850.2			781.8
Adjustment for change in accounting policy for goodwill		9		(35.7	)		—			—
Net (distribution to) contribution by Magna				—			(869.5	)		46.6
Dividends on Class A Subordinate Voting and Class B Shares				(9.7	)		(2.0	)		—
Change in currency translation adjustment		17		—			(1.8	)		(12.9	)
Retained earnings and Magna's net investment, end of year			$	17.2		$	15.9		$	850.2
Earnings per Class A Subordinate Voting or Class B Share		3
	Basic		$	0.97		$	0.37			—
	Diluted		$	0.95		$	0.37			—
Average number of Class A Subordinate Voting and Class B Shares outstanding (in millions)		3
	Basic			48.2			47.9			—
	Diluted			63.6			47.9			—
Pro forma earnings per Class A Subordinate Voting or Class B Share		4
	Basic			—		$	0.91		$	0.60
	Diluted			—		$	0.90		$	0.60
Average number of Class A Subordinate Voting and Class B Shares outstanding (in millions)		4
	Basic			—			44.9			42.8
	Diluted			—			59.8			42.8

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Years ended December 31,
(U.S. dollars in millions)	Note	2002			2001			2000
Cash provided from (used for):
Operating Activities:
Net income		$	48.6		$	39.9		$	34.7
Items not involving current cash flows	19		155.5			101.2			69.0
			204.1			141.1			103.7
Change in non-cash working capital	19		111.4			25.9			(132.4	)
			315.5			167.0			(28.7	)
Investment Activities:
Fixed asset additions			(136.8	)		(87.6	)		(104.3	)
Increase in investments and other assets			(3.1	)		(5.0	)		—
Proceeds from disposition of fixed assets			4.8			2.6			3.8
			(135.1	)		(90.0	)		(100.5	)
Financing Activities:
Increase (decrease) in bank indebtedness			0.6			34.5			(2.5	)
Repayments of long-term debt			(4.6	)		(8.1	)		(1.8	)
Net (distribution to) contribution by Magna	21		—			(144.4	)		79.5
Issue of Class A Subordinate Voting Shares, net	14		0.1			71.7			—
Dividends on Class A Subordinate Voting and Class B Shares	14		(9.7	)		(2.0	)		—
Dividends on Convertible Series Preferred Shares	13, 14		(8.4	)		(1.9	)		—
			(22.0	)		(50.2	)		75.2
Effect of exchange rate changes on cash and cash equivalents			5.8			(1.3	)		(1.9	)
Net increase (decrease) in cash and cash equivalents during the year			164.2			25.5			(55.9	)
Cash and cash equivalents, beginning of year			77.1			51.6			107.5
Cash and cash equivalents, end of year		$	241.3		$	77.1		$	51.6

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.    SIGNIFICANT ACCOUNTING POLICIES

        The significant accounting policies followed by the Company are set out under "Significant Accounting Policies" preceding these consolidated financial statements.

2.    ACCOUNTING CHANGES

Goodwill

        In August 2001, the Canadian Institute of Chartered Accountants issued Handbook Section 3062 "Goodwill and Other Intangible Assets" ("CICA 3062"). CICA 3062 requires the application of the non-amortization and impairment rules for existing goodwill and intangible assets, which meet the criteria for indefinite life beginning with fiscal years starting after December 15, 2001. In all cases, the standard must be adopted at the beginning of a fiscal year. Effective January 1, 2002, the Company adopted these new recommendations prospectively without restatement of any comparable period (see note 9).

Stock-Based Compensation

        In November 2001, the CICA issued Handbook Section 3870 "Stock-Based Compensation and Other Stock-Based Payments" ("CICA 3870"). CICA 3870 requires that all stock-based awards granted to non-employees must be accounted for at fair value. The new standard also encourages but does not require the use of the fair value method for all stock-based compensation paid to employees. However, the fair value method does not have to be applied to options plans where the only choice is for the employee to pay the exercise price and obtain stock. The new standard only applies to awards granted after the adoption date. The Company has prospectively adopted CICA 3870 effective January 1, 2002 and has elected to continue accounting for employee stock options using the intrinsic value method. The adoption of CICA 3870 had no effect on the Company's reported earnings for the year ended December 31, 2002 (see note 15).

Impairment of Long-Lived Assets

        In January 2003, the CICA issued Handbook Section 3063 "Impairment of Long-Lived Assets" ("CICA 3063"). CICA 3063 requires an impairment loss to be recognized when the carrying amount of an asset to be held and used exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. An impairment loss is measured as the amount by which the asset's carrying amount exceeds its fair value. As permitted by CICA 3063, discounted cash flows are used to determine fair value. Previously, Canadian GAAP required that asset impairment be measured as the amount by which the asset's carrying value exceeded the undiscounted future cash flow from the use of the asset. In all cases, the standard must be adopted for fiscal years beginning April 1, 2003. The Company has elected to adopt these new recommendations early, effective January 1, 2002, prospectively without restatement of any prior period (see note 9).

3.    EARNINGS PER SHARE AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001.

        As a result of the reorganization of the Company, as described under "Principles of Consolidation in Significant Accounting Policies", earnings per share and retained earnings for the year ended December 31, 2001 include net income for the five-month period subsequent to July 31, 2001.

        The following table summarizes the calculation of earnings per share for the year ended December 31, 2002, and for the five-month period ended December 31, 2001:

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

        At December 31, 2001, the Company had outstanding 2,525,000 incentive stock options and 2,250,000 Convertible Series Preferred Shares, which are anti-dilutive and, therefore, not included in the December 31, 2001 earnings per share calculation above.

4.    PRO FORMA EARNINGS PER SHARE

        The following pro forma adjustments have been made to arrive at pro forma earnings per share for the years ended December 31, 2001 and 2000:

•

Adjustments to reflect the Company's new capital structure as described under Principles of Consolidation in Significant Accounting Policies;



•

Adjustments that give effect to the payment of revised affiliation fees and social commitment fees pursuant to the affiliation and social commitment agreements;



•

The Company's President and Chief Executive Officer's cash compensation arrangements; and



•

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

        Basic and diluted pro forma earnings per Class A Subordinate Voting or Class B Share are based on the public offering of 5,476,191 Class A Subordinate Voting Shares completed in August 2001 and on the assumption that 42,751,938 Class B Shares and 2,250,000 Convertible Series Preferred Shares were issued and outstanding for the entire periods presented.

        The following table summarizes the calculation of pro forma earnings per share:

		Years ended December 31,
		2001			2000
Pro forma basic earnings per Class A Subordinate Voting or Class B Share:
Net income attributable to Class A Subordinate Voting and Class B Shares		$	39.0		$	34.7
Pro forma adjustments (net of related tax effects):
	Amortization of discount on Convertible Series Preferred Shares		(6.1	)		(11.0	)
	Interest on debt due to Magna		9.5			16.4
	Net adjustment to affiliation fees and other corporate charges		(0.6	)		(12.2	)
	Financing charge on Convertible Series Preferred Shares		(0.8	)		(2.1	)
Pro forma net income attributable to Class A Subordinate Voting and Class B Shares		$	41.0		$	25.8
Average number of Class A Subordinate Voting and Class B Shares outstanding during the year			44.9			42.8
Pro forma basic earnings per Class A Subordinate Voting or Class B Share		$	0.91		$	0.60
Pro forma diluted earnings per Class A Subordinate Voting or Class B Share:
Pro forma net income attributable to Class A Subordinate Voting and Class B Shares		$	41.0		$	25.8
Pro forma adjustments (net of related tax effects):
	Amortization of discount on Convertible Series Preferred Shares		10.9			—
	Financing charge on Convertible Series Preferred Shares		1.7			—
		$	53.6		$	25.8
Average number of Class A Subordinate Voting and Class B Shares outstanding during the year			44.9			42.8
Convertible Series Preferred Shares			14.9			—
Stock options			—			—
			59.8			42.8
Pro forma diluted earnings per Class A Subordinate
Voting or Class B Share		$	0.90		$	0.60

5.    RESTRUCTURING PROVISIONS

        At December 31, 2002, the Company had a remaining provision of $1.1 million for severance and termination costs for the termination of 72 remaining employees as part of the relocation of production programs from one facility to another. During the years ended December 31, 2002, 2001 and 2000, the Company utilized severance and termination accruals of $0.9 million, $0.6 million and $0.3 million, respectively. Such amounts were included in the purchase price allocation of previous business acquisitions.

        During fiscal 2001, the Company recorded a restructuring charge for $2.7 million relating to the downsizing of one of the Company's under-performing divisions. During fiscal 2002, the Company recorded a further $2.8 million restructuring charge relating to the downsizing of the same under-performing division. At December 31, 2002, the Company had a remaining provision of $3.1 million for severance, termination and premise costs for the termination of 62 remaining employees and the relocation of production programs from one facility to another.

6.    EQUITY INVESTMENTS

        The Company entered into an operating agreement on August 1, 2002 with Rush Group L.L.C. ("Rush") and Dakkota Integrated Systems, L.L.C. ("DIS"), whereby the Company and Rush each have a membership interest in DIS. The Company's interest in DIS is 45%. DIS is accounted for on an equity basis. DIS is responsible for providing sequencing, logistics management and assembly services previously provided directly by the Company with respect to interior products, modules and related components to OEMs for several OEM programs under which the Company is manufacturing and supplying the interior products.

7.    INVENTORIES

        Inventories consist of:

	December 31,
	2002		2001
Raw materials and supplies	$	74.6	$	63.1
Work-in-process		23.5		17.0
Finished goods		25.6		23.4
Tooling and engineering		138.0		137.4
	$	261.7	$	240.9

        Tooling and engineering inventory represents cost incurred on separately priced tooling and engineering services contracts in excess of unbilled amounts included in accounts receivable. Unbilled amounts included in accounts receivable at December 31, 2002 totalled $18.3 million (December 31, 2001—$1.5 million).

8.    FIXED ASSETS

        Fixed assets consist of:

		December 31,
		2002			2001
Cost
	Land	$	9.0		$	8.3
	Buildings		44.9			38.4
	Leasehold improvements		24.5			20.6
	Machinery and equipment		800.7			717.1
	Assets under capital leases (i)		25.7			25.6
		$	904.8		$	810.0
Less: accumulated depreciation
	Buildings		(10.9	)		(10.3	)
	Leasehold improvements		(11.6	)		(10.5	)
	Machinery and equipment		(396.7	)		(359.5	)
	Assets under capital leases (i)		(7.5	)		(5.7	)
		$	478.1		$	424.0

Notes:

(i)

Assets under capital leases relate to the leasing of land and buildings by the Company from certain real estate subsidiaries of Magna. These lease agreements were entered into during the year ended December 31, 1998 (see note 11(f)).

(ii)

Included in the cost of fixed assets at December 31, 2002 are construction in progress expenditures of $45.3 million (December 31, 2001—$26.8 million).

(iii)

No interest was capitalized to fixed assets during the periods presented.

(iv)

Fixed assets at December 31, 2002 include a net reduction in the cost and accumulated depreciation of $20.1 million due to an impairment charge relating to one reporting unit in the Company's Interiors Europe reporting segment (see note 9).

9.    GOODWILL AND LONG-LIVED ASSET IMPAIRMENT

        In accordance with the new recommendations of the CICA, the Company completed a goodwill impairment test as at January 1, 2002, the adoption date under CICA 3062, and determined that unamortized goodwill of $27.6 million, $5.6 million and $2.5 million relating to reporting units in the Interiors Europe, Closures Europe, and Interiors North America reporting segments, respectively were impaired under the new rules.The impairment loss of $35.7 million net of a nil tax recovery, has been recorded as a change in accounting policy by a charge to opening retained earnings as of January 1, 2002.

        Prior to CICA 3062 coming into effect, goodwill impairment under Canadian GAAP was assessed based on estimated future undiscounted cash flows for the business to which the goodwill relates. Under CICA 3062, goodwill impairment is assessed based on a comparison of the fair value of the reporting unit to the underlying carrying value of the reporting unit's net assets, including goodwill. As recommended by the CICA 3062 accounting standard, discounted future cash flows were used to determine the fair value of the reporting unit. Under CICA 3062, after adoption of new recommendations, goodwill must be assessed for impairment on an annual basis, and any write-down would be charged against earnings. The Company completed its annual goodwill impairment test as at December 31, 2002 and determined that unamortized goodwill of $3.5 million relating to one reporting unit in its Interiors Europe reporting segment was impaired under the new rules. The impairment loss has been recorded in operating income as a charge against earnings for the fiscal year ending December 31, 2002. There was no tax recovery recorded on this charge to earnings.

        In addition, in accordance with the new recommendations of the CICA, the Company no longer records amortization expense for goodwill. On an adjusted basis, the Company's net income for the years ended December 31, 2001 and 2000 would have been as follows if it was applied retroactively:

	Years ended December 31,
	2001		2000
Net income as reported	$	39.9	$	34.7
Goodwill amortization, net of taxes		7.2		6.3
Adjusted net income	$	47.1	$	41.0

        In conjunction with the review of goodwill, the Company also assessed the recoverability of its long-lived assets in the same reporting unit in its Interiors Europe reporting segment, following the new accounting recommendations in CICA 3063. CICA 3063 requires an impairment loss to be recognized when the carrying value of an asset to be held and used exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. An impairment loss is measured as the amount by which the asset's carrying value exceeds its fair value. As permitted by CICA 3063, discounted cash flows were used to determine fair value. Previously, Canadian GAAP required that asset impairment be measured as the amount by which the asset's carrying value exceeded the undiscounted future cash flow from the use of the asset. As a result of this review, the Company reduced the carrying value of machinery and equipment, leasehold improvements and buildings by $17.6 million, $1.4 million and $1.1 million, respectively. As required by CICA 3063, the $20.1 million write-down of long-lived assets has been recorded in operating income as a charge against earnings for the fiscal year ending December 31, 2002. Net tax assets of $1.5 million associated with these operations were charged to income tax expense for the fiscal year ending December 31, 2002.

10.  INCOME TAXES

(a)

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

	Years ended December 31,
	2002			2001			2000
Canadian statutory income tax expense	$	43.3		$	33.5		$	28.8
Manufacturing and processing profits deduction		(4.1	)		(5.6	)		(6.3	)
Foreign rate differentials		(5.4	)		(2.6	)		0.9
Losses not benefited		19.5			4.9			5.2
Amortization of discount on Convertible Series Preferred Shares		3.8			2.0			—
Other		7.4			8.5			2.3
Income tax expense	$	64.5		$	40.7		$	30.9

(b)

The details of the income tax provision are as follows:

		Years ended December 31,
		2002		2001		2000
Current provision:
	Canadian federal taxes	$	18.4	$	17.5	$	17.9
	Provincial taxes		9.1		9.3		10.9
	Foreign taxes		9.8		5.1		23.7
			37.3		31.9		52.5
Future provision:
	Canadian federal taxes		0.7		0.9		(1.9	)
	Provincial taxes		0.3		0.5		(1.2	)
	Foreign taxes		26.2		7.4		(18.5	)
			27.2		8.8		(21.6	)
		$	64.5	$	40.7	$	30.9

(c)

Future income taxes have been provided on temporary differences, which consist of the following:

	Years ended December 31,
	2002			2001		2000
Fixed assets tax depreciation greater than book depreciation	$	3.5		$	1.5	$	1.5
Other assets tax depreciation (less than) greater than book depreciation		(9.8	)		3.5		3.9
Net tax losses utilized (benefited)		33.5			3.6		(25.2	)
Other		—			0.2		(1.8	)
	$	27.2		$	8.8	$	(21.6	)

(d)

Future tax assets and liabilities consist of the following temporary differences:

	December 31,
	2002			2001
Benefit of tax loss carryforwards	$	86.8		$	107.2
Fixed assets		(24.3	)		(26.6	)
Other assets		20.7			7.6
		83.2			88.2
Valuation allowance		(45.7	)		(27.2	)
Future tax assets, net	$	37.5		$	61.0
Represented on the balance sheet as follows:
Future tax assets	$	75.5		$	96.0
Future tax liabilities		(38.0	)		(35.0	)
	$	37.5		$	61.0

(e)

Income taxes paid in cash for the year ended December 31, 2002 were $37.0 million (for the years ended December 31, 2001 and 2000—$48.0 million and $50.7 million, respectively).

(f)

Canadian income before income taxes and minority interest was $74.2 million for the year ended December 31, 2002 (for the years ended December 31, 2001 and 2000—$70.5 million and $71.9 million, respectively). The corresponding amounts for foreign operations were $38.0 million for the year ended December 31, 2002 (for the year ended December 31, 2001, $9.7 million and for the year ended December 31, 2000 a loss of $ 6.5 million).

(g)

At December 31, 2002, the Company had income tax loss carryforwards of approximately $122.1 million that relate to certain foreign subsidiaries, the tax benefits of which have not been recognized in the consolidated financial statements. Of the total losses, $92.5 million expire between 2003 and 2012 and the remainder have no expiry date.

(h)

At December 31, 2002, $137.0 million of undistributed earnings of foreign subsidiaries and jointly controlled entities may be subject to tax if remitted to Canada. No provision has been made for such taxes as these earnings are considered to be reinvested for the foreseeable future.

11.  DEBT AND COMMITMENTS

(a)

The Company's long-term debt, which is substantially unsecured, consists of the following:

	December 31,
	2002		2001
Loans from governments with a weighted average interest rate of approximately 2% denominated primarily in euros	$	6.5	$	5.5
Bank term debt at a weighted average interest rate of approximately 4% denominated primarily in euros		6.3		5.6
Obligations under capital leases at an implicit rate of 7.6% (i)		23.2		23.3
Other		—		3.0
		36.0		37.4
Less due within one year		4.2		6.8
	$	31.8	$	30.6

Note:

(i)

Obligations under capital leases relate to the leasing of land and buildings by the Company from certain real estate subsidiaries of Magna. These agreements were entered into during the year ended December 31, 1998 (see note 11(f)).

(b)

At December 31, 2002, future principal repayments on long-term debt (excluding obligations under capital leases) are estimated to be as follows:

2003	$	3.0
2004		2.3
2005		2.5
2006		1.8
2007		1.9
Thereafter		1.3
	$	12.8

(c)

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

At December 31, 2002, the Company had operating lines of credit amounting to $68.1 million and term lines of credit amounting to $421.0 million. At December 31, 2002, the Company had unused and available operating lines of credit and term lines of credit of $65.1 million and $336.4 million.

(d)

Interest (income) expense includes:

		Years ended December 31,
		2002			2001			2000
Interest expense:
	Current	$	4.8		$	0.9		$	0.6
	Long-term		0.5			0.6			0.8
	Intercompany to Magna and its affiliates		2.1			40.6			41.7
			7.4			42.1			43.1
Interest income:
	Current		(8.9	)		(3.0	)		(3.2	)
	Intercompany from Magna and its affiliates		—			(22.9	)		(12.5	)
Interest (income) expense, net		$	(1.5	)	$	16.2		$	27.4

        Interest paid in cash for the year ended December 31, 2002 was $6.8 million (for the years ended December 31, 2001 and 2000—$3.7 million and $3.3 million, respectively).

(e)

At December 31, 2002, the Company had commitments under operating leases requiring annual rental payments to third parties and to Magna and its affiliates as follows:

	Third parties		Magna and its affiliates
2003	$	26.5	$	12.2
2004		20.7		13.0
2005		17.9		13.0
2006		13.8		12.4
2007		11.9		11.8
Thereafter		41.9		62.9
	$	132.7	$	125.3

        For the year ended December 31, 2002, operating lease expense amounted to $35.1 million (for the years ended December 31, 2001 and 2000—$24.4 million and $23.9 million, respectively).

(f)

At December 31, 2002, the Company had commitments under capital leases requiring annual rental payments to Magna and its affiliates as follows:

2003	$	3.0
2004		3.3
2005		3.3
2006		3.3
2007		3.3
Thereafter		20.3
		36.5
Less interest and other charges		13.3
Obligations under capital leases		23.2
Less current portion		1.2
Long-term portion of obligations under capital leases	$	22.0

12.  EMPLOYEE BENEFIT PLANS

        Prior to 2001, Magna's Corporate Constitution required that 10% of Magna's qualifying pre-tax profits before profit sharing (defined in its Corporate Constitution) for any fiscal period be allocated to an Employee Equity and Profit Participation Program ("EEPPP") consisting of the Magna deferred profit sharing plans and a cash distribution to eligible employees of Magna. Eligible Canadian, United States, United Kingdom, and European employees participate in the EEPPP.

        During 2001, Magna amended its Corporate Constitution to allow for the required contributions under its corporate constitution to be made to certain defined benefit pension plans in addition to the Magna deferred profit sharing plan and cash distributions to eligible employees. All U.S. and Canadian employees that participate in the deferred profit sharing plans were, and all new employees are, given the option of receiving a reduced percentage entitlement under the deferred profit sharing plan plus a defined benefit pension or continuing to receive their previous percentage entitlement. The defined benefit pension is payable to retirees at age 65 or older and is based on years of service and compensation levels. Participants may take early retirement after age 55 and receive a reduced pension package. In 2002, the Company adopted a similar profit sharing arrangement to Magna's, subject to obtaining the necessary regulatory approvals.

        In addition, a limited number of companies in the United Kingdom and Europe sponsor defined benefit pension and similar arrangements for their employees. Pursuant to labour laws and national labour agreements in certain European countries, the Company is obliged to provide lump sum termination payments to employees on retirement or involuntary termination and long service payments contingent upon persons reaching a pre-defined number of years of service.

        All pension plans and similar arrangements are funded to the minimum legal funding requirements. In certain circumstances there is no legal requirement to fund this obligation until such time as they are actually incurred, and as a result, these arrangements are unfunded.

        The cost of pension benefits earned by employees is actuarially determined using the projected benefit method pro rated on service and management's best estimate of expected plan investment performance, salary escalation and retirement ages of employees.

        The significant actuarial assumptions adopted in measuring the Company's projected pension benefit obligations are as follows:

Discount rate	5.0	%-6.75%
Rate of compensation increase	1.5	%-4.0%
Expected return on plan assets	5.0	%-8.0%

        Information about the Company's defined benefit pension plans is as follows:

		Years ended December 31,
		2002			2001			2000
Benefit obligations:
Beginning of year		$	48.5		$	51.7		$	47.9
	Current service and interest cost		7.7			6.7			6.0
	Actuarial losses (gains) and changes in actuarial assumptions		2.1			(2.6	)		1.8
	Benefits paid		(2.0	)		(2.3	)		(0.6	)
	Currency translation		5.1			(5.0	)		(3.4	)
End of year		$	61.4		$	48.5		$	51.7
Plan assets at fair value:
Beginning of year		$	28.5		$	34.3		$	31.2
	Return on plan assets		(5.2	)		(3.4	)		3.8
	Employer contributions		4.6			2.7			2.2
	Benefits paid		(2.0	)		(2.3	)		(0.6	)
	Currency translation		2.5			(2.8	)		(2.3	)
End of year		$	28.4		$	28.5		$	34.3
Unfunded amount			33.0		$	20.0		$	17.4
	Unrecognized actuarial (losses) gains		(12.6	)		(3.1	)		—
Net amount recognized in the consolidated balance sheets		$	20.4		$	16.9		$	17.4
Net periodic benefit cost:
Current service and interest costs		$	7.7		$	6.7		$	6.0
	Expected return on plan assets		(2.2	)		(2.4	)		(2.2	)
	Actuarial losses (gains)		—			—			0.3
		$	5.5		$	4.3		$	4.1

        During the year ended December 31, 2002, the Company incurred $1.7 million (for the years ended December 31, 2001 and 2000—$1.8 million and $1.9 million, respectively) of defined contribution plan expense.

        During the year ended December 31, 2000, the Company introduced a post retirement medical benefits plan covering eligible employees and retirees. Retirees aged 60 or older with ten or more years of service will be eligible for benefits. In addition, existing retirees as at August 1, 2000 that meet the above criteria are also eligible for benefits. Benefits are capped based on years of service.

        The cost of retirement medical benefits earned by employees is actuarially determined using the projected benefit method pro rated on service and estimates of retirement ages of employees and expected health care costs.

        The significant actuarial assumptions adopted in measuring the Company's projected retirement medical benefit obligations are as follows:

Discount rate	6.75	%
Rate of compensation increase	4.0	%

        Information about the Company's post retirement medical benefit plans is as follows:

		Years ended December 31,
		2002			2001			2000
Benefit obligations:
Beginning of year		$	7.8		$	8.5		$	5.0
	Past service obligations		—			—			4.4
	Current service and interest cost		0.8			0.8			0.7
	Actuarial losses (gains) and changes in actuarial assumptions		0.6			(0.5	)		(1.1	)
	Benefits paid		(0.9	)		(0.7	)		(0.5	)
	Currency translation		(0.1	)		(0.3	)		—
End of year		$	8.2		$	7.8		$	8.5
Plan assets at fair value:
Beginning of year		$	—		$	—		$	—
	Employer contributions		0.9			0.7			0.5
	Benefits paid		(0.9	)		(0.7	)		(0.5	)
End of year		$	—		$	—		$	—
Unfunded amount		$	8.2		$	7.8		$	8.5
	Unrecognized past service obligation		(3.6	)		(3.8	)		(4.0	)
	Unrecognized actuarial gain		0.6			1.2			—
Net amount recognized in the consolidated balance sheets		$	5.2		$	5.2		$	4.5
Net periodic benefit cost:
	Current service and interest costs	$	0.8		$	0.8		$	0.7
	Past service costs		0.2			0.2			0.2
		$	1.0		$	1.0		$	0.9

13.  CONVERTIBLE SERIES PREFERRED SHARES

        The Company has issued the following Convertible Series Preferred Shares:

	Number of Shares
Preferred Shares, Series 1	1,125,000
Preferred Shares, Series 2	1,125,000

        The Convertible Series Preferred Shares have the following attributes:

•

Carrying value of $100 per share;



•

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



•

Retractable at their carrying value, together with all declared and unpaid dividends, by the holders thereof after December 31, 2003 in the case of the Preferred Shares, Series 1; and after December 31, 2004 in the case of the Preferred Shares, Series 2;



•

Redeemable at their carrying value, together with all declared and unpaid dividends, and subject to purchase for cancellation by the Company commencing December 31, 2005; and



•

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

        The Convertible Preferred Shares, Series 1 and 2, were issued to Magna in August 2001 in satisfaction of $225.0 million of the Company's indebtedness to Magna.

        The portion of the Convertible Series Preferred Shares classified as long-term debt and the amounts reflected as amortization of discount on Convertible Series Preferred Shares are as follows:

	Series 1		Series 2		Total
Issued on August 9, 2001	$	97.7	$	92.1	$	189.8
Amortization of discount		2.4		2.4		4.8
Balance, December 31, 2001	$	100.1	$	94.5	$	194.6
Amortization of discount		6.0		5.6		11.6
Balance, December 31, 2002	$	106.1	$	100.1	$	206.2

        The liability amounts for the Convertible Series Preferred Shares are presented as long-term liabilities as Magna's retraction rights related to the shares are not exercisable before December 31, 2003 and December 31, 2004, respectively.

        The portion of the Convertible Series Preferred Shares included in shareholder's equity is as follows:

	2002		2001
Warrant portion (relating to conversion feature)	$	6.7	$	6.7
Dividend stream portion (relating to non-cumulative dividends)		15.3		24.7
	$	22.0	$	31.4

14.  CAPITAL STOCK

(a) Preferred Shares, Class A Subordinate Voting Shares and Class B Shares

        The Company's authorized capital stock includes unlimited preferred shares issuable in series. None of these shares are currently issued or outstanding.

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

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

        In the event that either the Class A Subordinate Voting Shares or the Class B Shares are subdivided or consolidated, the other class shall be similarly changed to preserve the relative position of each class.

        Outstanding Class A Subordinate Voting Shares and Class B Shares included in shareholders'equity as at December 31, 2002 and 2001 consist of:

	Class A Subordinate Voting Shares			Class B Shares
	Number of Shares	Stated Value		Number of Shares	Stated Value
Issuance of Class A Subordinate Voting
Shares on initial public offering (i)	5,476,191	$	71.7	—		—
Issuance of Class B Shares on the reorganization of the Company on August 7, 2001 (convertible into Class A Subordinate Voting Shares)	—		—	42,751,938	$	495.8
Balance, December 31, 2001	5,476,191	$	71.7	42,751,938	$	495.8
Issuance of Class A Subordinate Voting Shares on exercise of stock options	5,000		0.1	—		—
Balance, December 31, 2002	5,481,191	$	71.8	42,751,938	$	495.8

Note:

(i)

On July 31, 2001, the Company filed a final prospectus with the securities regulatory authorities in Canada and the United States for a public offering of Class A Subordinate Voting Shares. The offering was completed in August 2001. The details of the proceeds from the public offering of Class A Subordinate Voting Shares are as follows:

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

(b) Incentive Stock Options

        Under the 2001 Incentive Stock Option Plan adopted by the Company on August 9, 2001, the Company may grant options to purchase Class A Subordinate Voting Shares to employees, officers, directors or consultants of the Company. The remaining number of shares reserved to be issued for options is 5,995,000. The number of the unoptioned shares at December 31, 2002 is 2,840,000.

        The Canadian dollar options under Tranche 1, 2, 3, 5 and 6 vest¹/5 on the grant date and¹/5 on each subsequent July 31 thereafter, Tranche 4 vest¹/5 on the grant date and¹/5 on each subsequent December 31 thereafter. The U.S. dollar options under Tranche 1 vest¹/5 on the grant date and¹/5 on each subsequent July 31 thereafter, with the exception of 750,000 options that vest¹/3 on the grant date and¹/4 of the balance on each subsequent August 8 thereafter, Tranche 2 and 5 vest¹/5 on the grant date and¹/5 on each subsequent July 31 thereafter, Tranche 3 and 4 vest¹/5 on grant date and¹/5 on each subsequent December 31 thereafter. All options allow the holder to purchase Class A Subordinate Voting Shares at a price equal to the market price on the trading day immediately prior to date of grant of options.

        The following is a continuity schedule of options outstanding:

Canadian dollar options	Number		Weighted average exercise price	Options exercisable
Granted	1,400,000		Cdn.$21.00
Vested				280,000
Outstanding at December 31, 2001	1,400,000		Cdn.$21.00	280,000
Granted	375,000		Cdn.$25.99
Exercised	(5,000	)	Cdn.$21.00
Cancelled	(50,000	)	Cdn.$26.85
Vested				361,000
Outstanding at December 31, 2002	1,720,000		Cdn.$21.92	641,000

U.S. dollar options	Number		Weighted average exercise price	Options exercisable
Granted	1,125,000		U.S.$13.72
Vested				325,000
Outstanding at December 31, 2001	1,125,000		U.S.$13.72	325,000
Granted	335,000		U.S.$16.55
Expired	(4,000	)	U.S.$13.72
Cancelled	(21,000	)	U.S.$13.72
Vested				262,000
Outstanding at December 31, 2002	1,435,000		U.S.$14.38	587,000

        At December 31, 2002, the outstanding options consist of the following:

Canadian dollar options outstanding	Exercise price		Number	Remaining contractual life (years)	Options exercisable
Tranche 1	$	21.00	1,385,000	8.6	563,000
Tranche 2	$	21.00	10,000	8.6	4,000
Tranche 3	$	23.56	40,000	9.1	16,000
Tranche 4	$	29.40	5,000	9.5	2,000
Tranche 5	$	26.85	245,000	9.6	49,000
Tranche 6	$	21.00	35,000	9.9	7,000
			1,720,000		641,000
Weighted Average Exercise Price	$	21.92
Weighted Average Remaining Contractual Life				8.8

U.S. dollar options outstanding	Exercise price		Number	Remaining contractual life (years)	Options exercisable
Tranche 1	$	13.72	1,060,000	8.6	499,000
Tranche 2	$	13.72	40,000	8.6	16,000
Tranche 3	$	18.34	20,000	9.2	8,000
Tranche 4	$	18.78	5,000	9.4	2,000
Tranche 5	$	16.40	310,000	9.6	62,000
			1,435,000		587,000
Weighted Average Exercise Price	$	14.38
Weighted Average Remaining Contractual Life				8.8

(c) Maximum Number of Shares

        The following table presents the maximum number of Class A Subordinate Voting and Class B Shares that would be outstanding if all of the outstanding options and Convertible Series Preferred Shares issued and outstanding as at December 31, 2002 were exercised or converted:

	Number of Shares
Class A Subordinate Voting Shares outstanding as at December 31, 2002	5,481,191
Class B Shares outstanding as at December 31, 2002	42,751,938
Options to purchase Class A Subordinate Voting Shares	3,155,000
Convertible Series Preferred Shares, convertible at $15.09 per share	14,910,537
	66,298,666

(d) Dividends

        Dividends declared and paid on outstanding Class A Subordinate Voting and Class B Shares were as follows:

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

        Dividends declared on outstanding Series 1 and Series 2 Preferred Shares aggregated to $11.3 million for the year ended December 31, 2002 ($1.9 million for the year ended December 31, 2001). Dividends paid on outstanding Series 1 and Series 2 Preferred Shares aggregated to $8.4 million for the year ended December 31, 2002 ($1.9 million for the year ended December 31, 2001).

15.  STOCK-BASED COMPENSATION

        The Company does not recognize compensation expense for its outstanding fixed price stock options. Under CICA 3870, the Company is now required to disclose compensation expense for fixed price stock options issued subsequent to January 1, 2002, assuming compensation expense for the stock option plan had been determined based upon the fair value at the grant date, consistent with the methodology prescribed by the CICA.

        The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

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

        The Black-Scholes options valuation model used by the Company to determine fair values was developed for use in estimating the fair value of freely traded options which are fully transferable and have no vesting restrictions. In addition, this model requires the input of highly subjective assumptions, including future stock price volatility and expected time until exercise. Because the Company's outstanding stock options have characteristics which are significantly different from those of traded options, and because changes in any of the assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the stock options.

        On a pro forma basis, the net income, basic and diluted earnings per Class A Subordinate Voting and Class B Share for the year ended December 31, 2002 would have been $47.7 million, $0.95 and $0.93, respectively.

        The weighted average fair value of the 710,000 options granted during the year ended December 31, 2002 was $ 5.63 per option.

16.  FINANCIAL INSTRUMENTS

(a) Foreign Exchange Risk

        The Company operates globally, which gives rise to risk that its earnings and cash flows may be adversely impacted by fluctuations in foreign exchange. The Company uses foreign exchange contracts to manage foreign exchange risk from its underlying customer contracts. In particular, the Company uses foreign exchange forward contracts for the sole purpose of hedging certain of the Company's future committed U.S. dollar, euro and British pound outflows and inflows. Gains and losses on these hedging instruments are recognized in the same period as, and part of, the hedged transaction. The Company does not enter into foreign exchange contracts for speculative purposes.

        The Company had outstanding foreign exchange forward contracts representing commitments to buy and (sell) foreign currencies in exchange for Canadian dollars as follows:

	December 31, 2002
	U.S. dollar amount			Weighted average	euro amount		Weighted average
2003	$	108.7		1.5211	€	8.3	1.3862
2003		(94.2	)	1.4556		—	—
2004		44.5		1.5375		5.9	1.3764
2004		(88.4	)	1.4769		—	—
2005		13.1		1.5190		2.9	1.4435
2005		(85.6	)	1.4717		—	—
2006		(16.1	)	1.3862		—	—
	$	(118.0	)		€	17.1

        At December 31, 2002, the Company had other outstanding foreign exchange contracts to buy and sell various foreign currencies in exchange for either euros, U.S. dollars or British pounds. The total amount of such contracts were to buy euros 59.4 million, buy U.S. dollars 46.2 million and sell British pounds 50.9 million.

        Based on forward exchange rates as at December 31, 2002 for contracts with similar remaining terms to maturity, the unrecognized net losses relating to the Company's significant foreign exchange forward contracts are approximately $14.7 million. If the Company's forward exchange contracts ceased to be effective as hedges, for example if projected net foreign cash inflows declined significantly, previously unrecognized gains or losses pertaining to the portion of the hedging transactions in excess of projected foreign denominated cash flows would be recognized in income at the time this condition was identified.

(b) Fair Value

        The Company has determined the estimated fair values of its financial instruments based on appropriate valuation methodologies, however considerable judgement is required to develop these estimates. Accordingly, these estimated fair values are not necessarily indicative of the amounts the Company could realize in a current market exchange. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies. The methods and assumptions used to estimate the fair value of financial instruments are described below.

Cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and accrued liabilities

        Due to the short period to maturity of the instruments, the carrying values as presented in the consolidated balance sheets are reasonable estimates of fair value.

Long-term debt

        The fair value of the Company's long-term debt (including debt portion of the Convertible Series Preferred Shares), based on current rates for debt with similar terms and maturities, is not materially different from its carrying value.

(c) Credit Risk

        The Company's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts receivable and forward exchange contracts with positive values.

        Cash and cash equivalents which consist of short-term investments, including commercial paper, are only invested in governments and corporations with an investment grade credit rating. Credit risk is further reduced by limiting the amount that is invested in any one government or corporation.

        The Company, in the normal course of business, is exposed to credit risk from its customers, substantially all of which are in the automotive industry. These accounts receivable are subject to normal industry credit risks.

        The Company is also exposed to credit risk from the potential default by any of its counterparties on foreign exchange forward contracts. The Company mitigates this credit risk by dealing with counterparties who are major financial institutions and who the Company anticipates will satisfy their obligations under the contracts.

(d) Interest Rate Risk

        The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities. In addition, the Company's exposure to interest rate risk on fixed rate long-term instruments is also reduced given the minimum periods to redemption with respect to Convertible Series Preferred Shares.

        The following table summarizes the Company's interest rate risk as at December 31, 2002:

		Floating rate			Fixed interest rate			Non-interest bearing			Total
Financial Assets:
	Cash and cash equivalents	$	241.3		$	—		$	—		$	241.3
	Accounts receivable		—			—			579.9			579.9
Financial Liabilities:
	Bank indebtedness		(48.6	)		—			—			(48.6	)
	Accounts payable and all other accrued liabilities and payables		—			—			(782.5	)		(782.5	)
	Long-term debt due within one year		—			(4.2	)		—			(4.2	)
	Long-term debt		—			(31.8	)		—			(31.8	)
	Convertible Series Preferred Shares		—			(206.2	)		—			(206.2	)
	Other long-term liabilities		(25.6	)		—			—			(25.6	)
		$	167.1		$	(242.2	)	$	(202.6	)	$	(277.7	)
Average fixed rate of long-term debt						5.0	%

(e)  Electricity Swaps

        Since May 2002, the Company pays a floating hourly price for electricity in the deregulated Ontario, Canada electricity market. At December 31, 2002, the Company had entered into electricity swap contracts to manage the cash flow risk from its Ontario electricity purchase contracts with an annual notional energy volume of 88,000 megawatt hours ("MWh") under which it pays a weighted average fixed price of $54.50 per MWh and receives a floating average price per MWh based on the hourly Ontario energy price. These contracts expire at various dates until April 2005. The net settlements under the electricity swap contracts are recognized in the same period as, and as part of, the hedged transaction. The Company does not enter into electricity swap contracts for speculative purposes.

        The Company estimates the fair value of these electricity contracts as at December 31, 2002 is $0.5 million, representing a financial benefit to the Company. In December 2002, the Ontario government passed Bill 210, which freezes the electricity price for low volume and designated customers. Although the Company is not directly affected, Bill 210 has disrupted the forward market for Ontario electricity contracts and significantly reduced liquidity. The Company has estimated fair value based on available broker quotes but given the current illiquidity of the market, the fair value is subject to significant measurement uncertainty.

17.  CURRENCY TRANSLATION ADJUSTMENT

        Unrealized translation adjustments, which arise on the translation to U.S. dollars of assets and liabilities of the Company's operations with a functional currency of other than the U.S. dollar, resulted in an unrealized currency translation gain of $42.1 million for the year ended December 31, 2002. The unrealized gains resulted primarily from the strengthening of the euro, British pound and Canadian dollar against the U.S. dollar.

        The Company has designated the debt portion of the Convertible Series Preferred Shares (note 13) as a hedge of its net investment in its operations in the United States. Gains and losses from this hedge are not included in the income statement, but are shown in the currency translation adjustment account. The Company recorded a foreign exchange gain of $3.4 million in the currency translation account related to such shares.

18.  INTERESTS IN JOINTLY CONTROLLED ENTITIES

        The following is the Company's proportionate share of the major components of the financial statements of the jointly controlled entities in which the Company has an interest (before eliminations):

Balance sheets

	December 31,
	2002		2001
Current assets	$	63.5	$	39.9
Long-term assets	$	43.1	$	34.5
Current liabilities	$	48.9	$	33.2
Long-term liabilities	$	30.8	$	15.9

Statements of income

	Years ended December 31,
	2002		2001		2000
Sales	$	180.3	$	134.6	$	133.0
Costs of goods sold, expenses and income taxes		176.1		133.4		129.3
Net income	$	4.2	$	1.2	$	3.7

Statements of cash flows

	Years ended December 31,
	2002			2001			2000
Cash provided from (used for):
Operating activities	$	16.9		$	23.0		$	9.8
Investment activities	$	(6.3	)	$	(6.5	)	$	(3.0	)
Financing activities	$	(7.7	)	$	3.2		$	(6.3	)

        At December 31, 2002, the Company's share of equity in jointly controlled entities includes undistributed earnings of $21.1 million (December 31, 2001—$19.0 million).

19.  DETAILS OF CASH FROM OPERATING ACTIVITIES

(a)  Items not involving current cash flows

	Years ended December 31,
	2002			2001			2000
Depreciation and amortization	$	88.5		$	88.0		$	86.1
Future income taxes		27.2			8.8			(21.6	)
Pension and retirement medical obligations		6.5			5.3			5.0
Loss (gain) on disposals of fixed assets		2.1			(1.1	)		1.7
Other charges		23.6			—			—
Amortization of discount on Convertible Series Preferred Shares		11.6			4.8			—
Other		(4.0	)		(4.6	)		(2.2	)
	$	155.5		$	101.2		$	69.0

(b)  Changes in non-cash working capital

	Years ended December 31,
	2002			2001			2000
Accounts receivable	$	31.9		$	(108.1	)	$	(89.5	)
Inventories		(4.0	)		(22.7	)		(72.7	)
Prepaid expenses and other		(2.6	)		14.1			1.0
Accounts payable and accrued liabilities		86.1			142.6			28.8
	$	111.4		$	25.9		$	(132.4	)

20.  SEGMENTED INFORMATION

(a)

The Company designs, manufactures and supplies automotive interior and closure components, modules and systems primarily for OEM customers on a Tier One basis and manufactures and supplies interior and closure components on a Tier Two basis to other Tier One suppliers. At December 31, 2002, the Company had operations in 14 countries including 65 manufacturing facilities and 17 product development and engineering facilities.

        The Company is organized by two product groups; Interior Systems and Closure Systems. Each group includes the following products and services:

Interior Systems

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

Closure Systems

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

        Effective January 1, 2002, the Company changed its measurement of segment profitability from income (loss) before income taxes to operating income (loss).

		Year ended December 31, 2002
		Total sales			Depreciation and amortization		Operating income (loss)(1)			Fixed asset additions		Fixed assets, net
Interior Systems
	North America	$	1,774.4		$	36.9	$	108.4		$	65.5	$	222.2
	Europe		1,278.3			31.3		(23.3	)		41.2		161.1
Closure Systems
	North America		662.1			10.8		52.5			18.1		42.0
	Europe		156.1			9.4		(18.1	)		11.7		52.4
Corporate, other and intersegment eliminations			(9.3	)		0.1		2.2			0.3		0.4
Total reportable segments		$	3,861.6		$	88.5	$	121.7		$	136.8		478.1
Current assets													1,116.2
Goodwill, future tax and other assets													187.5
Total assets												$	1,781.8

(1)

Interior Systems Europe includes $23.6 million of other charges (see note 9).

		Year ended December 31, 2001
		Total sales			Depreciation and amortization		Operating income (loss)			Fixed asset additions		Fixed assets, net
Interior Systems
	North America	$	1,561.0		$	35.2	$	78.4		$	34.4	$	199.2
	Europe		974.0			31.6		(7.2	)		29.9		146.5
Closure Systems
	North America		614.7			11.3		35.9			10.6		34.2
	Europe		121.5			8.5		(0.9	)		12.6		43.9
Corporate, other and intersegment eliminations			(3.1	)		1.4		(4.6	)		0.1		0.2
Total reportable segments		$	3,268.1		$	88.0	$	101.6		$	87.6		424.0
Current assets													915.9
Goodwill, future tax and other assets													239.5
Total assets												$	1,579.4

		Year ended December 31, 2000
		Total sales			Depreciation and amortization		Operating income (loss)			Fixed asset additions		Fixed assets, net
Interior Systems
	North America	$	1,380.1		$	34.0	$	39.2		$	48.0	$	201.5
	Europe		868.1			32.2		10.1			34.8		137.8
Closure Systems
	North America		595.8			11.1		46.6			12.7		40.7
	Europe		128.5			8.0		(1.6	)		8.8		36.6
Corporate, other and intersegment eliminations			(1.6	)		0.8		(0.8	)		—		—
Total reportable segments		$	2,970.9		$	86.1	$	93.5		$	104.3		416.6
Current assets													788.3
Goodwill, future tax and other assets													260.8
Total assets												$	1,465.7

(b)

The following tables show certain information with respect to geographic segmentations:

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

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

	Year ended December 31, 2000
	Canada		United States and Other		Continental Europe		United Kingdom		Total
Sales	$	1,146.8	$	827.5	$	658.9	$	337.7	$	2,970.9
Fixed assets, net	$	69.9	$	172.3	$	118.1	$	56.3	$	416.6
Goodwill, net	$	33.3	$	27.2	$	37.4	$	52.3	$	150.2

(c)

For the year ended December 31, 2002, sales to the three largest customers amount to 30%, 19% and 19% (for the year ended December 31, 2001—36%, 20% and 15%; for the year ended December 31, 2000—34%, 20% and 15%) of total sales, respectively.

21.  TRANSACTIONS WITH RELATED PARTIES

	Years ended December 31,
	2002		2001		2000
Charges by Magna and its affiliates:
Interest expense, net	$	2.1	$	17.7	$	29.2
Amortization of discount on Convertible Series Preferred Shares		11.6		4.8		—
Financing charge on Convertible Series Preferred Shares		1.9		0.9		—
Management and administrative services		1.9		4.7		4.3
Affiliation and social fees		55.3		48.8		29.8
Rent		10.8		6.1		7.4
Depreciation of assets under capital lease		1.8		1.7		1.8
Sales of materials to Magna and its affiliates		13.9		13.7		6.4
Purchases of materials from Magna and its affiliates		22.8		28.6		34.8

        At December 31, 2002, the Company's accounts receivable include accounts receivable from Magna controlled entities of $11.7 million (December 31, 2001—$36.9 million) and accounts payable include accounts payable to Magna controlled entities of $49.3 million (December 31, 2001—$43.9 million).

        Magna provides certain management and administrative services to the Company, including legal, environmental, immigration, administrative, tax, internal audit, treasury, information systems and employee relations services, in return for a specific amount negotiated between the Company and Magna. Commencing January 1, 2002, the Company began reporting amounts paid to Magna for management and administrative services in selling, general and administrative expenses ("SG&A"). Affiliation and social fees continue to be shown separately in the consolidated statements of income. All comparative period amounts have been reclassified to conform with the current period's presentation.

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

•

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



•

provide the Company with access to Magna's core operating principles and to new policies and programs adopted by Magna from time to time;



•

provide the Company with access to Magna's senior management and make available to the Company details of any new management techniques and incentive programs as well as marketing materials to the extent they are made available generally to Magna's other affiliates; and



•

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

        Pursuant to the Company's affiliation agreements with Magna, the affiliation fees payable by the Company to Magna in respect of each fiscal year will be an aggregate amount equal to:

•

1.5% of the first $3 billion of consolidated net sales for that year;



•

1.0% of the next $3 billion of consolidated net sales for that year; and



•

0.75% of consolidated net sales exceeding $6 billion.

        Sales from acquired businesses will not be subject to a fee until January 1 of the year following the date of acquisition, and will be subject to a fee equal to 50% of the fee with respect to the Company's sales in the calendar year following the date of the acquisition, and to the full fee in the second calendar year following the date of the acquisition and thereafter.

        The affiliation fee included in "Affiliation and social fees" was $53.6 million for the year ended December 31, 2002 (for the years ended December 31, 2001 and 2000—$47.6 million and $28.0 million, respectively).

        The Company's Corporate Constitution provides that a maximum of 2% of its pre-tax profits in each fiscal year shall be allocated to the promotion of social objectives. Of this maximum, the social commitment agreement the Company entered into with Magna during the year ended December 31, 2001, effective January 1, 2001, requires the Company to contribute 1.5% of its pre-tax profits in each fiscal year to social and charitable programs coordinated by Magna or other charitable or non-profit organizations on behalf of Magna and its affiliates, including Intier.

        The social commitment fee included in "Affiliation and social fees" was $1.7 million for the year ended December 31, 2002 (for the years ended December 31, 2001 and 2000—$1.2 million and $1.8 million, respectively).

        Affiliation and social fees in prior years were calculated on a different basis than the 2002 and 2001 affiliation fee and social commitment fees and are therefore not comparable.

        Pursuant to the Company's Corporate Constitution, 10% of the Company's employee pre-tax profit before profit sharing of participating Intier divisions for any fiscal year is required to be allocated to an Employee Equity and Profit Participation Program (the "Intier EEPPP"). During 2002, the Company's Board of Directors approved the establishment of the Intier EEPPP, subject to obtaining necessary regulatory approvals. The Company's eligible employees in Canada, the United States, the United Kingdom and Austria participate in the Intier EEPPP. Prior to fiscal 2002, the Company's employees participated in the Magna EEPPP. The Company's portion of the costs associated with the Magna EEPPP for the years ended December 31, 2001 and 2000 was $28.0 million and $25.7 million, respectively.

        Various land and buildings used in the Company's operations are leased from Magna and its affiliates under operating and capital lease agreements (see note 11).

        Transactions with Magna and its affiliates are effected on normal commercial terms.

22.  CONTINGENCIES

(a)

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

•

breach of fiduciary duty by Magna and two of its subsidiaries, including ACTS;

•

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

•

the plaintiff's exclusive entitlement to certain airbag technologies in North America pursuant to an exclusive licence agreement, together with an accounting of all revenues and profits resulting from the alleged use by Magna, TRW Inc, ("TRW"), ACTS and other unrelated third party automotive supplier defendants of such technology in North America;

•

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

Magna and ACTS have filed an amended statement of defence and counterclaim and intend to vigorously defend this case. At this time, despite the early stages of this legal proceeding and the difficulty in predicting a final outcome, the Company believes that the ultimate resolution of these claims against ACTS will not have a material adverse effect on the Company's consolidated financial position. In addition, Magna has agreed to indemnify ACTS for any damages, liabilities, or expenses incurred in connection with this claim.

(b)

The Company has entered into an agreement with Magna under which it has the option to purchase, and Magna has the right to require it to purchase, Magna's 32% equity interest in Camaco L.L.C. for a purchase price of one dollar.



(c)

The Company is at risk for warranty costs including product liability and recall costs. Product liability provisions are established based on the Company's best estimate of the amounts necessary to settle existing claims on product defect issues. Recall costs are costs incurred when the Company and/or the customer decide, either voluntarily or involuntarily, to recall a product due to a known or suspected performance issue. Costs typically include the cost of the product being replaced, customer cost of the recall and labour to remove and replace the defective part. When a decision to recall a product has been made or is probable as the Company is fully or partially responsible for the defective product, the Company's estimated cost of the recall is recorded as a charge to net earnings in that period. In making this estimate, judgement is required as to the number of units that may be returned as a result of the recall, the total cost of the recall campaign, the ultimate negotiated sharing of the cost between the Company and the customer and, in some cases, the extent to which a supplier to the Company will share the recall cost. Due to the nature of the costs, the Company makes its best estimate of the expected future costs, however, the ultimate amount of such costs could be materially different. Given the nature of the Company's products, to date, the Company has not experienced significant warranty including product liability and recall costs. However, the Company continues to experience increased customer pressure to assume greater warranty responsibility. Currently, the Company only accounts for existing or probable claims, however, a significant increase in warranty responsibility could require the Company to consider accounting for possible future claims.

In particular, one of the Company's customers has asserted a claim for reimbursement for warranty costs as well as additional expenses which it expects to incur as a result of a voluntary customer satisfaction-based recall of a product which forms part of a module supplied by the Company to the customer. The product in question is supplied to the Company by another large supplier that the Company was directed to use by its customer. The customer has claimed that the warranty and future recall costs could be up to $42 million. Based on the Company's investigations to date, the Company does not believe that it has any liability for this claim and that any liability that the Company may become subject to, if it is established that the product is defective, will be recoverable from the supplier of the product, although the Company cannot provide assurance that this will be the case.

(d)

In the ordinary course of business activities, the Company may be contingently liable for litigation and claims with customers, suppliers and former employees and for potential environmental issues. Management believes that adequate provisions are recorded in the accounts where required. Although it is not possible to estimate the extent of potential costs and losses, if any, management believes, but can provide no assurance, that the ultimate resolution of such contingencies would not have a material adverse effect on the financial position of the Company.



(e)

The Company has guarantees to third parties that include future rent, utility costs, workers compensation claims under development, commitments linked to maintaining specific employment, customs duties and obligations linked to performance of specific vehicle programs. The amount of these guarantees are not individually or in aggregate significant.

23.  UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

        The consolidated financial statements are prepared using Canadian generally accepted accounting principles which conform with United States generally accepted accounting principles except for the following:

(a)

The Company has certain interests in jointly controlled entities that have been proportionately consolidated in these consolidated financial statements. Under U.S. GAAP, these interests would be accounted for by the equity method. Net income, earnings per share, shareholders' equity and Magna's net investment under U.S. GAAP are not impacted by the proportionate consolidation of these interests in jointly controlled entities.



(b)

Under U.S. GAAP, the Company would not have accounted for the Convertible Series Preferred Shares as part equity and part debt as required under Canadian GAAP. Under U.S. GAAP, the Convertible Series Preferred Shares would be shown at their face value outside of shareholders' equity and the entire non-cumulative dividend would be deducted from net income attributable to Class A Subordinate Voting and Class B Shares.



(c)

In December 1999, the United States Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. Effective January 1, 2000, the Company changed its method of accounting under U.S. GAAP for in-house engineering service and tooling contracts provided in conjunction with subsequent assembly or production activities which are regarded as a single arrangement. Previously, the Company had recognized revenue from these engineering services and tooling contracts on a percentage of completion basis. Under the new accounting method adopted effective January 1, 2000, for U.S. GAAP purposes, the Company recognizes revenue and related costs of sales for these activities over the estimated life of the assembly or production arrangement. The cumulative adjustment to net income as of January 1, 2000 was not significant.

For the year ended December 31, 2002, revenues and expenses under U.S. GAAP are lower by $3.3 million (for the years ended December 31, 2001 and 2000—$8.7 million and $9.3 million, respectively) and $3.4 million (for the years ended December 31, 2001 and 2000—$8.3 million and $8.4 million, respectively), as a result of this difference between Canadian and U.S. GAAP. The net revenue reduction for the year ended December 31, 2002 includes $3.8 million (for the years ended December 31, 2001 and 2000—$6.8 million and $8.2 million, respectively) in revenue that was included in the cumulative effect adjustment as of January 1, 2000.

(d)

The Company continues to measure compensation cost related to awards of stock options using the intrinsic value-based method of accounting as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" as permitted by Statement of Financial Accounting Standards Board No. 123 "Accounting for Stock-Based Compensation" ("Statement 123"). In addition, under EITF 96-18, when stock options are issued to non-employees other than directors acting in their capacity as a director, the Company must record compensation expense in accordance with Statement 123. Options issued to directors for services provided outside of their role as a director are recorded as compensation expense by the Company. Under Canadian GAAP options issued to directors after December 31, 2001 for services outside of their roles as directors are recorded as compensation expense. For the year ended December 31, 2002, the Company did not issue stock options to non-employees. For the year ended December 31, 2001, the Company issued stock options to non-employees in return for services rendered. The total amount of this compensation expense for 2002 was $ 0.8 million (2001—$0.4 million).

(e)

The Company uses foreign exchange forward contracts to manage foreign exchange risk from its underlying customer contracts. In particular, the Company uses foreign exchange forward contracts for the sole purpose of hedging certain of its future committed U.S. dollar, euro and British pound outflows and inflows. Under Canadian GAAP, gains and losses on these contracts are accounted for as a component of the related hedged transaction. For periods up to and including December 31, 2000, gains and losses on these contracts were also accounted for as a component of the related hedged transaction under U.S. GAAP.

Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards Board No.133 ("Statement 133"), "Accounting for Derivative Instruments and Hedging Activities", as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Statement 133 requires a company to recognize all of its derivative instruments as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. Statement 133 establishes certain criteria to be met in order to designate a derivative instrument as a hedge and to deem a hedge as effective.

For the year ended December 31, 2001, the Company's derivative portfolio was not eligible for hedge accounting despite the fact that management considered its portfolio to be an effective foreign currency risk management tool and an economic hedge of its future committed U.S. dollar, euro and British pound outflows and inflows. Accordingly, the Company recorded a charge to net income of $16.1 million in the year ended December 31, 2001 for purposes of reconciling to U.S. GAAP. For periods to and including December 31, 2000, this amount would have been deferred and recorded as a component of the related hedge transaction under U.S. GAAP. In addition, the Company recorded a cumulative adjustment to other comprehensive income of $ 8.2 million as of January 1, 2002 upon adoption of Statement 133.

Effective January 1, 2002, the Company implemented a new treasury management system that complies with the documentation requirements for hedge accounting under Statement 133. Gains and losses as a result of changes in fair value of hedges are now recorded in other comprehensive income. For the year ended December 31, 2002, the Company recorded a gain in other comprehensive income of $9.9 million. In addition, gains or losses on hedge contracts that matured during the year that were previously recognized in other comprehensive income are recognized in net income. The Company recorded a loss of $4.2 million for the year ended December 31, 2002 in net income for losses on contracts that matured during 2002 that were previously recognized in other comprehensive income.

(f)

As described in note 16, the Company uses electricity swap contracts to manage the cash flow risk from its electricity purchase contracts in Ontario, Canada. Under both Canadian GAAP and U.S. GAAP, these swap contracts are accounted for using hedge accounting and the net swap settlements are recognized in the same period as, and as part of, the hedged transaction. For U.S. GAAP purposes only, the Company reflects the fair value of the swap contract on the balance sheet with an offsetting adjustment to other comprehensive income.



(g)

The Company accounts for its operating leases on a pay as you go basis. During the year ended December 31, 2002, the Company entered into certain operating leases with specific scheduled rent increases over the lease term. Under U.S. GAAP, the effects of the scheduled rent increases included in the minimum lease payments are recognized on a straight-line basis over the lease term. As a result, for the year ended December 31, 2002, net income under U.S. GAAP is lower by $1.0 million.

(h)

Under U.S. GAAP, the 2002 goodwill write-off as a result of the company's initial review for impairment as described in note 9 is reported as a cumulative catch-up adjustment for a change in accounting policy.



(i)

The following table presents net income and comprehensive income under U.S. GAAP:

		Years ended December 31,
		2002			2001			2000
Net income attributable to Class A Subordinate Voting and Class B Shares under Canadian GAAP		$	46.7		$	39.0		$	34.7
Adjustments (net of related tax effects):
	Amortization of discount on Convertible Series Preferred Shares		11.6			4.8			—
	Return of capital on Convertible Series Preferred Shares		(9.4	)		(3.8	)		—
	In-house tooling and engineering		0.1			(0.4	)		(0.9	)
	Derivative instruments		(4.2	)		(16.1	)		—
	Operating leases		(1.0	)		—			—
	Non-employee stock option compensation expense		(0.8	)		(0.4	)		—
Net income attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP before cumulative catch-up adjustment		$	43.0		$	23.1		$	33.8
Cumulative adjustment for change in accounting policy related to goodwill			(35.7	)		—			—
Net income attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP after cumulative catch-up adjustment		$	7.3		$	23.1		$	33.8
Other comprehensive income (net of related tax effects):
	Derivative instruments		9.9			—			—
	Electricity swap contracts		0.3			—			—
	Cumulative adjustment at January 1, 2001 for the change in derivative instrument accounting		—			(8.2	)		—
	Adjustment for derivative instruments,matured during the period, included in the cumulative adjustment at January 1, 2001		4.2			4.4			—
	Unrealized foreign exchange gains (losses) on translation of self-sustaining foreign entities		42.1			(13.4	)		(12.9	)
Comprehensive income under U.S. GAAP		$	63.8		$	5.9		$	20.9

(j)

As a result of the reorganization of the Company, as described under Principles of Consolidation in Significant Accounting Policies, earnings per share and retained earnings for the year ended December 31, 2001 include net income for the five-month period subsequent to July 31, 2001.

        The following table presents net income, comprehensive income and basic earnings per share information under U.S. GAAP for the year ended December 31, 2002 and for the five-month period ended December 31, 2001:

		Years ended December 31,
		2002			2001
Net income attributable to Class A Subordinate Voting and Class B Shares under Canadian GAAP		$	46.7		$	17.9
Adjustments (net of related tax effects):
	Amortization of discount on Convertible Series Preferred Shares		11.6			4.8
	Return of capital on Convertible Series Preferred Shares		(9.4	)		(3.8	)
	In-house tooling and engineering		0.1			(0.3	)
	Derivative instruments		(4.2	)		—
	Operating leases		(1.0	)		—
	Non-employee stock option compensation expense		(0.8	)		(0.4	)
Net income attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP before cumulative catch-up adjustment		$	43.0		$	18.2
Cumulative adjustment for change in accounting policy related to goodwill			(35.7	)		—
Net income attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP after cumulative catch-up adjustment		$	7.3		$	18.2
Other comprehensive income (net of related tax effects):
Derivative instruments			9.9			—
Electricity swap contracts			0.3			—
Adjustment for derivative instruments, matured during the period, included in the cumulative adjustment at January 1, 2001			4.2			—
Unrealized foreign exchange losses on translation of self-sustaining foreign entities			42.1			(4.9	)
Comprehensive income under U.S. GAAP		$	63.8		$	13.3
Basic earnings per Class A Subordinate Voting or Class B Share:
Before cumulative catch-up adjustment		$	0.89		$	0.38
Cumulative adjustment		$	(0.74	)	$	—
After cumulative catch-up adjustment		$	0.15		$	0.38
Average number of Class A Subordinate Voting and Class B Shares outstanding during the period			48.2			47.9

        The following table presents diluted earnings per share information under U.S. GAAP for the year ended December 31, 2002 and for the five-month period ended December 31, 2001:

		Years ended December 31,
		2002			2001
Net income attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP before cumulative catch-up adjustment		$	43.0		$	18.2
Adjustment (net of related tax effect):
	Return of capital and financing charge on Convertible Series Preferred Shares		11.3			4.7
		$	54.3		$	22.9
Cumulative adjustment for change in accounting related to goodwill			(35.7	)		—
Net income attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP after cumulative catch-up adjustment for diluted earnings per share		$	18.6		$	22.9
Diluted earnings per Class A Subordinate Voting or Class B Share:
Before cumulative catch-up adjustment		$	0.85		$	0.36
Cumulative adjustment		$	(0.56	)		—
After cumulative catch-up adjustment		$	0.29		$	0.36
Average number of Class A Subordinate Voting and Class B Shares outstanding during the period			48.2			47.9
Convertible Series Preferred Shares			14.9			14.9
Stock options			0.5			—
			63.6			62.8

(k)

The following table indicates the significant items in the consolidated balance sheets that would have been affected had the consolidated financial statements been prepared under U.S. GAAP:

	December 31, 2002
	Canadian GAAP		Operating leases			Electricity swap			Derivative instruments			In-house tooling and engineering			Convertible Series Preferred Shares			U.S. GAAP
Future tax assets	$	75.5	$	0.6		$	(0.2	)	$	5.4		$	0.6		$	—		$	81.9
Other accrued liabilities		50.2		1.6			(0.5	)		15.3			1.8			—			68.4
Convertible Series Preferred Shares		206.2		—			—			—			—			18.8			225.0
Shareholders' Equity		644.0		(1.0	)		0.3			(9.9	)		(1.2	)		(18.8	)		613.4

	December 31, 2001
	Canadian GAAP		Derivative instruments			In-house tooling and engineering			Convertible Series Preferred Shares			U.S. GAAP
Future tax assets	$	96.0	$	10.7		$	0.7		$	—		$	107.4
Other accrued liabilities		49.6		30.6			2.0			—			82.2
Convertible Series Preferred Shares		194.6		—			—			30.4			225.0
Shareholders' Equity		609.9		(19.9	)		(1.3	)		(30.4	)		558.3

(l)

In November 2001, the CICA issued Handbook Section 3870 "Stock-Based Compensation and Other Stock-Based Payments" ("CICA 3870"). CICA 3870 requires that all stock-based awards granted to non-employees must be accounted for at fair value. The new standard also encourages but does not require the use of the fair value method for all stock-based compensation paid to employees. However, the fair value method does not have to be applied to option plans where the only choice is for the employees to pay the exercise price and obtain stock. The new standard only applies to awards granted after the adoption date. The Company has prospectively adopted CICA 3870 effective January 1, 2002 and has elected to continue accounting for employee stock options using the intrinsic value method. Therefore, the Company does not recognize compensation expense for its outstanding fixed price stock options. Under U.S. GAAP, the Company is required to disclose compensation expense assuming compensation expense for the stock option plan had been determined based upon the fair market value at the grant date, consistent with the methodology prescribed under Statement 123. The compensation expense being disclosed includes all options granted to employees up to December 31, 2002.

        The fair value of the stock options is estimated at the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions:

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

        The Black-Scholes options valuation model used by the Company to determine fair values was developed for use in estimating the fair value of freely traded options which are fully transferable and have no vesting restrictions. In addition, this model requires that input of highly subjective assumptions, including future stock price volatility and expected time until exercise. Because the Company's outstanding stock options have characteristics which are significantly different from those of traded options, and because changes in any of the assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

        The weighted average fair value of 710,000 options granted during the year ended December 31, 2002 was $ 5.63 per option (2001—$4.18).

        On a pro forma basis, under Statement 123, the 2002 net income attributable to Class A Subordinate Voting and Class B Shares, and basic and diluted earnings per Class A Subordinate Voting or Class B Share would have been $ 4.6 million and $0.10 and $0.10, respectively (2001—$17.5 million and $0.37 and $0.35, respectively).

(m)

Under Staff Accounting Bulletin 74, the Company is required to disclose certain information related to new accounting standards which have not yet been adopted due to delayed effective dates.

CANADIAN GAAP STANDARDS

        In December 2002, the CICA amended Handbook Section 3475, "Disposal of Long-Lived Assets and Discontinued Operations" ("CICA 3475"). CICA 3475 provides guidance on differentiating between assets held for sale and held for disposal other than by sale and on the presentation of discontinued operations. CICA 3475 applies to disposal activities initiated on or after May 1, 2003.

        In December 2001, the CICA approved proposed amendments to Accounting Guideline, AcG-13, "Hedging Relationships" ("AcG-13"). The proposed amendments clarify certain of the requirements in AcG-13 and provide additional application guidance. The proposed amendments will be finalized in the first half of 2003 and will be applicable when AcG-13 becomes effective for fiscal years beginning on or after July 1, 2003.

        Although the Company is currently reviewing CICA 3475 and AcG-13 the impact, if any, of these pronouncements on its consolidated financial statements has not been determined.

U.S. GAAP STANDARDS

        During 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("FAS 143"). FAS 143 requires that legal obligations arising from the retirement of tangible long-lived assets, including obligations identified by a company upon acquisition and construction and during the operating life of a long-lived asset, be recorded and amortized over the assets' useful life using a systematic and rational allocation method. FAS 143 is effective for fiscal years beginning after June 15, 2002.

        During 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS 146"). FAS 146 requires that costs associated with an exit or disposal activity be recognized and measured at fair value in the period in which the liability is incurred. FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002.

        In 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires certain guarantees to be recorded at fair value; previously a liability was only recorded when a loss under a guarantee was probable and reasonably estimable. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002.

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires that a variable interest entity be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and apply to existing variable interest entities in the first fiscal year or interim period beginning after June 15, 2003.

        During 2002, the Emerging Issues Task Force ("EITF") issued EITF Abstract 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables" ("EITF 00-21"). EITF 00-21 addresses how to account for arrangements that involve the delivery or performance of multiple products and services. EITF 00-21 is effective for agreements entered into in fiscal periods beginning after June 15, 2003.

        Although the Company is currently reviewing FAS 143, FAS 146 and EITF 00-21 and the recognition and measurement requirements of FIN 45 and FIN 46, the impact, if any, of these pronouncements on its consolidated financial statements has not been determined.