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<SEC-DOCUMENT>0000749098-05-000022.txt : 20050810
<SEC-HEADER>0000749098-05-000022.hdr.sgml : 20050810
<ACCEPTANCE-DATETIME>20050810161728
ACCESSION NUMBER:		0000749098-05-000022
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20050630
FILED AS OF DATE:		20050810
DATE AS OF CHANGE:		20050810

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MAGNA INTERNATIONAL INC
		CENTRAL INDEX KEY:			0000749098
		STANDARD INDUSTRIAL CLASSIFICATION:	MOTOR VEHICLE PARTS & ACCESSORIES [3714]
		IRS NUMBER:				000000000
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		6-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-11444
		FILM NUMBER:		051013743

	BUSINESS ADDRESS:	
		STREET 1:		337 MAGNA DRIVE
		STREET 2:		N/A
		CITY:			AURORA, ONTARIO, CAN
		STATE:			A6
		ZIP:			L4G 7K1
		BUSINESS PHONE:		9057262462

	MAIL ADDRESS:	
		STREET 1:		337 MAGNA DRIVE
		STREET 2:		N/A
		CITY:			AURORA, ONTARIO, CAN
		STATE:			A6
		ZIP:			L4G 7K1
</SEC-HEADER>
<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>aug10_20056k.txt
<DESCRIPTION>FORM 6-K DATED AUGUST 10, 2005
<TEXT>
                              UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C. 20549

                               FORM 6-K

  Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16
                  of the Securities Exchange Act of 1934

For the month of     August 2005
Commission File Number    0-13942

                         MAGNA INTERNATIONAL INC.
              (Exact name of Registrant as specified in its Charter)

               337 Magna Drive, Aurora, Ontario, Canada L4G 7K1
                  (Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
                                        Form 20-F      Form 40 F..X..

Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1):_____

Note:  Regulation S-T Rule 101(b)(1) only permits the submission in paper of
a Form 6-K if submitted solely to provide an attached annual report to
security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(7):___

Note:  Regulation S-T Rule 101(b)(7) only permits the submission in paper of
a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws
of the jurisdiction in which the registrant is incorporated, domiciled or
legally organized (the registrant's "home country"), or under the rules of
the home country exchange on which the registrant's securities are traded, as
long as the report or other document is not a press release, is not required
to be and has not been distributed to the registrant's security holders, and,
if discussing a material event, has already been the subject of a Form 6-K
submission or other Commission filing on EDGAR.

Indicate by check mark whether the registrant, by furnishing the information
contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
                           Yes ....       No ...X...

If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-____

                                          SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                      MAGNA INTERNATIONAL INC.
                                      (Registrant)

                                      By:   /s/J. Brian Colburn
Date:  August 10, 2005.                       J. Brian Colburn
                                        Executive Vice-President, Special
                                        Projects and Secretary




                                    EXHIBITS


Exhibit 99

Press release issued August 10, 2005 in which the Registrant announced its
interim unaudited financial results for the second quarter and six month period
ended June 30, 2005 and declared its quarterly dividend in the amount of
U.S.$0.38 per Class A Subordinate Voting Share and Class B Share.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>2
<FILENAME>aug10_2005press.txt
<DESCRIPTION>PRESS RELEASE ISSUED AUGUST 10, 2005
<TEXT>
                                                   Exhibit 99
MAGNA LOGO                                Magna International Inc.
                                          337 Magna Drive
                                          Aurora, Ontario L4G 7K1
                                          Tel   (905) 726-2462
                                          Fax   (905) 726-7164

                                PRESS RELEASE

            MAGNA ANNOUNCES SECOND QUARTER AND YEAR TO DATE RESULTS

August 10, 2005, Aurora, Ontario, Canada.....Magna International Inc. (TSX:
MG.SV.A, MG.MV.B; NYSE: MGA) today reported financial results for the second
quarter and six month period ended June 30, 2005.

    <<
    -------------------------------------------------------------------------
                                   THREE MONTHS ENDED     SIX MONTHS ENDED
                                         JUNE 30,              JUNE 30,
                                  --------------------- ---------------------
                                     2005       2004       2005       2004
                                  ---------- ---------- ---------- ----------
    Sales                          $  5,858   $  5,113   $ 11,576   $ 10,216

    Operating income               $    323   $    331   $    577   $    652

    Net income                     $    225   $    188   $    397   $    367

    Diluted earnings per share     $   2.06   $   1.93   $   3.73   $   3.77
    -------------------------------------------------------------------------
            All results are reported in millions of U.S. dollars,
                          except per share figures.
    -------------------------------------------------------------------------

    THREE MONTHS ENDED JUNE 30, 2005
    --------------------------------
    We posted record sales of $5.9 billion for the second quarter ended
June 30, 2005, an increase of 15% over the second quarter of 2004. The higher
sales level in the second quarter of 2005 reflects increases of 19% in North
American average dollar content per vehicle and 16% in European average dollar
content per vehicle, each over the comparable quarter in 2004. During the
second quarter of 2005, North American vehicle production declined
approximately 1% and European vehicle production declined approximately 3%,
each from the comparable quarter in 2004. European complete vehicle assembly
sales decreased 8% or $90 million to $1.05 billion for the second quarter of
2005 compared to $1.14 billion for the second quarter of 2004.
    Operating income was $323 million for the second quarter of 2005 compared
to $331 million for the second quarter of 2004.
    We earned net income for the second quarter ended June 30, 2005 of
$225 million, compared to $188 million for the second quarter ending June 30,
2004.
    Diluted earnings per share were $2.06 for the second quarter ended
June 30, 2005, compared to $1.93 for the second quarter ending June 30, 2004.
    During the three months ended June 30, 2005, we generated cash from
operations before changes in non-cash operating assets and liabilities of
$401 million, and invested $272 million in non-cash operating assets and
liabilities. Total investment activities for the second quarter of 2005 were
$260 million, including $205 million in fixed asset additions, $33 million to
purchase subsidiaries and a $22 million increase in other assets.

    SIX MONTHS ENDED JUNE 30, 2005
    ------------------------------
    We posted record sales of $11.6 billion for the six months ended June 30,
2005, an increase of 13% over the comparable period in 2004. The higher sales
level in the first six months of 2005 reflects increases of 19% in North
American average dollar content per vehicle and 16% in European average dollar
content per vehicle, each over the comparable period in 2004. During the first
six months of 2005, North American vehicle production declined approximately
3% and European vehicle production declined approximately 4%, each from the
comparable period in 2004. European complete vehicle assembly sales increased
1% or $24 million to $2.18 billion for the six months ended June 30, 2005
compared to $2.16 billion for the six months ended June 30, 2004.
    Operating income was $577 million for the six months ended June 30, 2005
compared to $652 million for the comparable period in 2004.
    We earned net income for the six months ended June 30, 2005 of
$397 million, compared to $367 million for the comparable period in 2004.
    Diluted earnings per share were $3.73 for the six months ended June 30,
2005, compared to $3.77 for the comparable period in 2004.
    During the six months ended June 30, 2005, we generated cash from
operations before changes in non-cash operating assets and liabilities of
$763 million, and invested $110 million in non-cash operating assets and
liabilities. Total investment activities for the first six months of 2005 were
$567 million, including $329 million in fixed asset additions, $169 million to
purchase subsidiaries and a $69 million increase in other assets.
    A more detailed discussion of our consolidated financial results for the
second quarter and six months ended June 30, 2005 is contained in the
Management's Discussion and Analysis of Results of Operations and Financial
Position and the unaudited interim consolidated financial statements and notes
thereto which are attached to this press release.

    OTHER MATTERS
    -------------
    Our Board of Directors yesterday declared a quarterly dividend with
respect to our outstanding Class A Subordinate Voting Shares and Class B
Shares for the fiscal quarter ended June 30, 2005. The dividend of U.S. $0.38
per share is payable on September 15, 2005 to shareholders of record on
August 31, 2005.

    2005 OUTLOOK
    ------------
    All amounts below exclude the impact of any potential future
acquisitions.
    Our results are expected to continue to be impacted by the negative
conditions in the automotive industry, including weak automotive production,
OEM price concessions, higher commodity costs and general economic
uncertainty. In addition, our 2005 results are expected to be negatively
impacted by certain unusual items, including rationalization and other charges
associated with certain of our operations, including operations that supplied
MG Rover, and restructuring charges arising from our recently completed
privatizations.
    We expect 2005 average dollar content per vehicle to be between $710 and
$730 in North America and between $305 and $325 in Europe. We expect 2005
European complete vehicle assembly sales to be between $4.0 billion and
$4.2 billion. Further, we have assumed 2005 vehicle production volumes will be
approximately 15.7 million units in North America and approximately
16.1 million units in Europe. Based on expected average dollar content per
vehicle in North America and Europe, current exchange rates, the above volume
assumptions and anticipated complete vehicle assembly, tooling and other
automotive sales, we expect our sales for 2005 to be between $21.6 billion and
$22.6 billion, compared to 2004 sales of $20.7 billion. In addition, we expect
that 2005 spending for fixed assets will be between $850 million and
$900 million.
    In 2005, excluding the impact of the unusual items noted above, we
anticipate lower diluted earnings per share than 2004.
    Magna, the most diversified automotive supplier in the world, designs,
develops and manufactures automotive systems, assemblies, modules and
components, and engineers and assembles complete vehicles, primarily for sale
to original equipment manufacturers of cars and light trucks in North America,
Europe, Asia and South America. Magna's products include: automotive interior
and closure components, systems and modules; metal body systems, components,
assemblies and modules; exterior and interior mirror and engineered glass
systems; fascias, front and rear end modules, plastic body panels, exterior
trim components and systems, greenhouse and sealing systems and lighting
components; various powertrain and drivetrain components; and complete vehicle
engineering and assembly.
    Magna has approximately 82,000 employees in 220 manufacturing operations
and 56 product development and engineering centres in 22 countries.

    -------------------------------------------------------------------------
    We will hold a conference call for interested analysts and shareholders
    to discuss our second quarter results on Wednesday, August 10, 2005 at
    8:30 a.m. EDT. The conference call will be chaired by Vincent J. Galifi,
    Executive Vice-President and Chief Financial Officer. The number to use
    for this call is 1-877-871-4105. The number for overseas callers is
    1-416-620-7069. Please call in 10 minutes prior to the call. We will also
    webcast the conference call at www.magna.com. The slide presentation
    accompanying the conference call will be on our website Wednesday morning
    prior to the call.

    For further information, please contact Louis Tonelli, Vice-President,
    Investor Relations at 905-726-7035.

    For teleconferencing questions, please call 905-726-7103.
    -------------------------------------------------------------------------

    This press release may contain statements that, to the extent that they
are not recitations of historical fact, constitute "forward-looking
statements" within the meaning of applicable securities legislation. forward-
looking statements may include financial and other projections, as well as
statements regarding our future plans, objectives or economic performance, or
the assumptions underlying any of the foregoing. Any such forward-looking
statements are based on assumptions and analyses made by us in light of our
experience and our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe are
appropriate in the circumstances. However, whether actual results and
developments will conform with our expectations and predictions is subject to
a number of risks, assumptions and uncertainties. These risks, assumptions and
uncertainties principally relate to the risks associated with the automotive
industry and include those items listed in the attached Management's
Discussion and Analysis of Results of Operations and Financial Position. In
addition, for a more detailed discussion, reference is made to the risks,
assumptions, uncertainties and other factors set out in our Annual Information
Form filed with the Canadian Securities Commissions and our annual report on
Form 40-F filed with the United States Securities and Exchange Commission, and
subsequent filings. In evaluating forward-looking statements, readers should
specifically consider the various factors which could cause actual events or
results to differ materially from those indicated by such forward-looking
statements. Unless otherwise required by applicable securities laws, we do not
intend, nor do we undertake any obligation, to update or revise any forward-
looking statements to reflect subsequent information, events, results or
circumstances or otherwise.

    -------------------------------------------------------------------------
    For further information about Magna, please see our website at
    www.magna.com. Copies of financial data and other publicly filed
    documents are available through the internet on the Canadian Securities
    Administrators' System for Electronic Document Analysis and Retrieval
    (SEDAR) which can be accessed at www.sedar.com and on the United States
    Securities and Exchange Commission's Electronic Data Gathering, Analysis
    and Retrieval System (EDGAR) which can be accessed at www.sec.gov.
    -------------------------------------------------------------------------



    MAGNA INTERNATIONAL INC.
    Management's Discussion and Analysis of Results of Operations and
    Financial Position
    -------------------------------------------------------------------------

    All amounts in this Management's Discussion and Analysis of Results of
Operations and Financial Position ("MD&A") are in U.S. dollars and all tabular
amounts are in millions of U.S. dollars, except per share figures and average
dollar content per vehicle, which are in U.S. dollars, unless otherwise noted.
When we use the terms "we", "us", "our" or "Magna", we are referring to Magna
International Inc. and its subsidiaries and jointly controlled entities,
unless the context otherwise requires.
    This MD&A should be read in conjunction with the unaudited interim
consolidated financial statements for the three months and six months ended
June 30, 2005, included in this press release, and the audited consolidated
financial statements and MD&A for the year ended December 31, 2004, included
in our 2004 Annual Report to Shareholders. The unaudited interim consolidated
financial statements for the three months and six months ended June 30, 2005
and the audited consolidated financial statements for the year ended
December 31, 2004 are both prepared in accordance with Canadian generally
accepted accounting principles.
    This MD&A has been prepared as at August 9, 2005.

    OVERVIEW
    -------------------------------------------------------------------------

    We are the most diversified automotive supplier in the world. We design,
develop and manufacture automotive systems, assemblies, modules and
components, and engineer and assemble complete vehicles. Our products and
services are sold to original equipment manufacturers ("OEMs") of cars and
light trucks in North America, Europe, Asia and South America.
    In October 2004, we announced our intention to take each of our publicly
traded subsidiaries private to further enhance our overall competitiveness.
During the first quarter of 2005, we completed the privatization of Tesma
International Inc. ("Tesma") and Decoma International Inc. ("Decoma") and
during the second quarter of 2005 we completed the privatization of Intier
Automotive Inc. ("Intier"). The completion of these transactions has allowed
management the opportunity to evaluate alternative operating structures that
could further enhance our competitiveness. Currently, management has not yet
completed the evaluation or implementation of these alternative operating
structures. As a result, for the second quarter of 2005, our segmented
information has been provided utilizing our former global systems groups,
consistent with the first quarter of 2005. On April 4, 2005, we announced that
Donald Walker and Siegfried Wolf had been appointed as co-Chief Executive
Officers with primary responsibility for North America and Europe,
respectively.

    HIGHLIGHTS
    -------------------------------------------------------------------------

    Compared to the second quarter of 2004, we continued to face significant
challenges during the second quarter of 2005, including:

    -   higher commodity prices;
    -   comparatively lower production at General Motors ("GM") and Ford; and
    -   increased price concessions.

    Despite these ongoing challenges, we reported solid results for the
quarter. Our sales increased 15% or $745 million to $5.9 billion for the
second quarter of 2005 compared to $5.1 billion for the second quarter of
2004, even though vehicle production volumes declined 1% in North America and
3% in Europe. Our operating income decreased 2% to $323 million and our
diluted earnings per share increased 7% to $2.06.
    The second quarter of 2005 was successful in terms of new and replacement
business awards, with over $1 billion awarded. In particular, we made
significant progress with the Asian-based OEMs, with over $150 million of new
and replacement business awarded. Also during the second quarter of 2005, we
successfully launched the assembly of the Chrysler 300 at our Magna Steyr
facility in Graz, Austria. We now assemble seven different vehicles in one of
the world's most flexible vehicle assembly plants.
    The most significant issues that affected our results in the second
quarter of 2005 included:

    -   Unusual Items: During the second quarter of 2005, we recorded certain
        unusual items that affected our operating income and diluted earnings
        per share, including:

        -  an $18 million ($0.16 per share) foreign currency gain on the
           repatriation of funds from Europe;
        -  a $16 million ($0.09 per share) gain on disposal of a non-core
           seat component facility in North America; and
        -  restructuring and impairment charges totalling $14 million ($0.12
           per share) related substantially to three European facilities.

    -   Privatizations: During the second quarter of 2005, we successfully
        completed the privatization of Intier. Total consideration paid for
        the Class A Shares of Intier not owned by us was approximately
        $202 million, which was satisfied by issuing approximately
        2.3 million Magna Class A Subordinate Voting Shares and cash of
        approximately $50 million.

        Our operating results for the second quarter of 2005 were negatively
        impacted by $8 million due to the amortization of fair value
        increments (reflected in the preliminary purchase accounting) for the
        privatizations. Offsetting the additional amortization was a
        $27 million reduction in minority interest expense since no minority
        interest expense was recorded in the second quarter of 2005 as a
        result of the privatizations. Finally, our diluted earnings per share
        were negatively impacted as a result of the increase in the weighted
        average number of diluted shares outstanding due to the
        privatizations, including:

        -  approximately 10.7 million Class A Subordinate Voting Shares
           issued to complete the privatizations;
        -  approximately 1.1 million additional shares that are issuable as a
           result of assuming Decoma's obligation for it's 6.5% Convertible
           Subordinated Debentures; and
        -  an increase in the number of options outstanding as a result of
           assuming the Tesma, Decoma and Intier stock options.

    -   Commodity Prices: During the quarter, we continued to pay more for
        raw materials, including purchased components, used in our production
        compared to the second quarter of 2004. Although steel prices have
        recently begun to decline following a period of significant price
        increases, and a significant portion of our steel, resins and other
        components are covered under customer resale programs or long-term
        contracts, increased commodity prices negatively impacted our results
        in the second quarter of 2005, as compared to the second quarter of
        2004.

    -   Weak Production on Key Platforms: In the North American market, GM
        and Ford production volumes declined by 11% and 6%, respectively,
        even though North American vehicle production volumes declined by
        only 1% in the second quarter of 2005 compared to the second quarter
        of 2004. More importantly, production volumes on certain of our high
        content platforms experienced significant declines, including:

        -  a 60% decline in Ford Freestar and Mercury Monterey volumes;
        -  a 30% decline in Ford Explorer and Mercury Mountaineer volumes;
        -  a 21% decline in Dodge Ram Pickup volumes;
        -  an 11% decline in Ford Escape and Mazda Tribute volumes; and
        -  a 6% decline in volumes for the GMT800 platform.

    -   Pricing Pressures: Given the increasingly competitive nature of the
        automotive industry, we faced increased price concessions in the
        second quarter of 2005 as compared to the second quarter of 2004.

    -   New Facilities: In the second quarter of 2005, we continued to invest
        in new and existing production facilities to support our continued
        growth, including: a new frame facility in Kentucky for the new Ford
        Explorer and F-Series Super Duty pickup trucks; a new fascia moulding
        and paint facility in Georgia to support the launch of the Mercedes M-
        Class and R-Class; and a new stamping facility in Sonora, Mexico to
        support the launch of the Ford Fusion, Mercury Milan and Lincoln
        Zephyr. Although we expect these programs to be profitable as they
        launch and ramp up, in the short-term our operating profits are
        negatively affected by these investments as certain costs that we
        incur are not capitalized.

    -   Plant Rationalizations: As discussed above, during the second quarter
        of 2005, we incurred certain restructuring costs and impairment
        charges. In connection with our recent privatizations and other
        industry issues, we are in the process of completing an assessment of
        our global operating capacity. As a result of this assessment, we are
        developing and implementing a facility rationalization strategy that
        includes plant consolidations and/or closures and the associated
        expenses have had, and will continue to have, an adverse effect on
        our 2005 profitability.

    -   Income Taxes: During the second quarter of 2005, we realized a
        significant decrease in our effective income tax rate (excluding the
        unusual items above) compared to the second quarter of 2004,
        primarily as a result of a decrease in income tax rates in Austria
        and Mexico, an increase in utilization of losses not previously
        benefited and a reduction in losses not benefited. In addition to the
        lower income tax rates, we believe that our effective income tax rate
        will remain below historical levels as we expect to capitalize on
        income tax planning strategies that may become available as a result
        of the privatizations.

    INDUSTRY TRENDS AND RISKS
    -------------------------------------------------------------------------

    A number of trends have had a significant impact on the global automotive
industry in recent years, including:

    -   increased pressure by automobile manufacturers on automotive
        component suppliers to reduce their prices and bear additional costs;
    -   globalization and consolidation of the automotive industry, including
        both automobile manufacturers and automotive component suppliers;
    -   the evolving role of independent automotive component suppliers and
        their progression up the "value chain";
    -   increased outsourcing and modularization of vehicle production;
    -   increased engineering capabilities required in order to be awarded
        new business for more complex systems and modules;
    -   increased prevalence of lower volume "niche" vehicles built off
        high-volume global vehicle platforms;
    -   growth of Asian-based automobile manufacturers in North America and
        Europe;
    -   volatility of commodity costs; and
    -   growth of the automotive industry in China and other Asian countries.

    The following are some of the more significant risks that could affect
our ability to achieve our desired results:

    -   The global automotive industry is cyclical and consumer demand for
        automobiles is sensitive to changes in certain economic and political
        conditions, including interest rates, oil and energy prices and
        international conflicts (including acts of terrorism). As a result of
        these conditions, some of our customers are currently experiencing
        reduced consumer demand for their vehicles, as well as declining
        vehicle production volumes. A continued reduction in vehicle
        production volumes could have a material adverse effect on our
        profitability.

    -   Rising healthcare, pension and other post-employment benefit costs
        are having a significant adverse effect on the profitability and
        competitiveness of certain North American based automobile
        manufacturers. Increased raw material prices, including steel and
        resins, are also adversely affecting automobile manufacturers. Other
        economic conditions, such as increased gasoline prices, could further
        threaten sales of certain models, such as full-sized sport utility
        vehicles. All of these conditions, coupled with a decline in market
        share and overall production volumes, could threaten the financial
        condition of some of our customers. Through our normal supply
        relationship, we are exposed to credit risk with our customers and,
        in the event that our customers are unable to satisfy their financial
        obligations or seek protection from their creditors, as in the case
        of MG Rover, we may incur additional expenses as a result of such
        credit exposure, which could have a material adverse effect on our
        profitability.

    -   Although we supply parts to most of the leading automobile
        manufacturers, a significant majority of our sales are to four
        automobile manufacturers. A decline in overall production volumes by
        these customers, such as in the case of GM and Ford in recent
        quarters, could have an adverse effect on our sales and
        profitability, particularly if we are unable to diversify our
        customer base. Moreover, while we supply parts for a wide variety of
        vehicles produced in North America and Europe, we do not supply parts
        for all vehicles produced, nor is the number or value of parts evenly
        distributed among the vehicles for which we do supply parts. Shifts
        in market share among vehicles or the early termination, loss,
        renegotiation of the terms of, or delay in the implementation of any
        significant production contract could have an adverse effect on our
        sales and profitability.

    -   Over the last year we have experienced significant price increases
        for key commodities used in our parts production, particularly steel
        and resin. Although steel prices have begun to decline recently, we
        expect steel prices will remain at elevated levels in 2005.
        Approximately half of our steel is acquired through resale programs
        operated by the automobile manufacturers, which do not expose us to
        steel price increases and the balance is acquired through spot, short-
        term and long-term contracts. We also have pricing agreements with
        some of our suppliers that reduce our exposure to steel price
        increases. However, one such supplier has challenged its agreement
        with one of our groups while steel prices were rising and, to the
        extent that it or other suppliers successfully continue to dispute,
        terminate or otherwise refuse to honour their contracts, our exposure
        to steel price increases will increase to the extent that steel
        prices remain at elevated levels. We also sell scrap steel, which is
        generated through our parts production process, and the revenues from
        these sales have reduced some of our exposure to steel price
        increases in the past. However, if scrap steel prices decline, while
        steel prices remain high, our ability to reduce our exposure to steel
        price increases will diminish. To the extent we are unable to fully
        mitigate our exposure to increased steel prices, or to pass on to our
        customers the additional costs associated with increased steel and
        resin prices, such additional costs could have a material adverse
        effect on our profitability.

    -   We rely on a number of suppliers to supply us with a wide range of
        components required in connection with our business. Economic
        conditions, intense pricing pressures, increased commodity costs and
        a number of other factors have left many automotive components
        suppliers in varying degrees of financial distress. The continued
        financial distress or the insolvency or bankruptcy of one of our
        major automotive components suppliers could disrupt the supply of
        components to us from these suppliers, possibly resulting in a
        temporary disruption in the supply of products by us to our
        customers. Any prolonged disruption in the supply of critical
        components by our suppliers, the inability to re-source production of
        a critical component from a financially distressed automotive
        components sub-supplier, or any temporary shut-down of one of our
        production lines or the production lines of our customers, could have
        an adverse effect on our operations and/or our profitability.
        Additionally, the insolvency, bankruptcy or financial restructuring
        of any of our critical suppliers could result in us incurring
        unrecoverable costs related to the financial work-out of such
        suppliers and/or increased exposure for product liability, warranty
        or recall costs relating to the components supplied by such suppliers
        to the extent such suppliers are not able to assume responsibility
        for such amounts.

    -   Increasing price reduction pressures from our customers could reduce
        profit margins. We have entered into, and will continue to enter
        into, long-term supply arrangements with automobile manufacturers,
        which provide for, among other things, price concessions over the
        supply term. To date, these concessions have been fully or partially
        offset by cost reductions arising principally from product and
        process improvements and price reductions from our suppliers.
        However, the competitive automotive industry environment in North
        America, Europe and Asia has caused these pricing pressures to
        intensify. Some of our customers have demanded, and in light of
        challenging automotive industry conditions may continue to demand,
        additional price concessions and retroactive price reductions. We may
        not be successful in offsetting all of these price concessions
        through improved operating efficiencies, reduced expenditures or
        reduced prices from our suppliers. Such concessions could have a
        material adverse effect on our profitability to the extent that they
        are not offset through cost reductions or improved operating
        efficiencies.

    -   We continue to be pressured to absorb costs related to product
        design, engineering and tooling, as well as other items previously
        paid for directly by automobile manufacturers. In particular, some
        automobile manufacturers have requested that we pay for design,
        engineering and tooling costs that are incurred up to the start of
        production and recover these costs through amortization in the piece
        price of the applicable component. Some of these costs cannot be
        capitalized, which could adversely affect our profitability until the
        programs in respect of which they have been incurred have been
        launched. In addition, since our contracts generally do not include
        any guaranteed minimum purchase requirements, if estimated production
        volumes are not achieved, these costs may not be fully recovered,
        which could have an adverse effect on our profitability.

    -   Our customers continue to demand that we bear the cost of the repair
        and replacement of defective products which are either covered under
        their warranty or are the subject of a recall by them. If our
        products are, or are alleged to be, defective, we may be required to
        participate in a recall of those products, particularly if the actual
        or alleged defect relates to vehicle safety. Warranty provisions are
        established based on our best estimate of the amounts necessary to
        settle existing claims on product default issues. Recall costs are
        costs incurred when we and/or our customers 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, the customer's cost of the recall and labour
        to remove and replace the defective part. To date, we have not
        experienced significant warranty or recall costs. However, we
        continue to experience increased customer pressure to assume greater
        warranty responsibility. Currently we only account for existing or
        probable claims, however, the obligation to repair or replace such
        products could have a material adverse effect on our operations and
        financial condition.

    -   We are also subject to the risk of exposure to product liability
        claims in the event that the failure of our products results in
        bodily injury and/or property damage. We may experience material
        product liability losses in the future and may incur significant
        costs to defend such claims. Currently, we have bodily injury
        coverage under insurance policies. This coverage will continue until
        August 2006 and is subject to renewal on an annual basis. A
        successful claim against us in excess of our available insurance
        coverage could have an adverse effect on our operations and financial
        condition.

    -   Although our financial results are reported in U.S. dollars, a
        significant portion of our sales and operating costs are realized in
        Canadian dollars, euros, British pounds and other currencies. Our
        profitability is affected by movements of the U.S. dollar against the
        Canadian dollar, the euro, the British pound and other currencies in
        which we generate revenues and incur expenses. However, as a result
        of hedging programs employed by us primarily in Canada, foreign
        currency transactions are not fully impacted by the recent movements
        in exchange rates. We record foreign currency transactions at the
        hedged rate where applicable. Despite these measures, significant
        long-term fluctuations in relative currency values, in particular a
        significant change in the relative values of the U.S. dollar,
        Canadian dollar, euro or the British pound, could have an adverse
        effect on our financial condition.

    -   In response to the increasingly competitive automotive industry
        conditions, we may further rationalize some of our production
        facilities. Additional expenses associated with such a
        rationalization, including plant closings and relocations and
        employee severance costs, could also have an adverse effect on our
        short-term profitability.

    -   In connection with the recent privatization of our former publicly
        traded subsidiaries, we expect certain administrative functions will
        be reorganized to streamline such functions in a manner consistent
        with the stated objectives of the privatization. Such reorganization
        could involve additional expenses, such as office closings and
        relocations and employee severance costs, which could have an adverse
        effect on our short-term profitability.

    RESULTS OF OPERATIONS
    -------------------------------------------------------------------------

    Accounting Change

    Financial Instruments - Disclosure and Presentation

    In 2003, the Canadian Institute of Chartered Accountants ("CICA") amended
Handbook Section 3860 "Financial Instruments - Disclosure and Presentation"
("CICA 3860") to require certain obligations that may be settled with an
entity's own equity instruments to be reflected as a liability. The amendments
require us to present our Preferred Securities and Subordinated Debentures as
liabilities, with the exception of the equity value ascribed to the holders'
option to convert the 6.5% Convertible Subordinated Debentures into Class A
Subordinate Voting Shares, and to present the related liability carrying costs
as a charge to net income. We adopted these new recommendations effective
January 1, 2005 on a retroactive basis.
    The impact of this accounting policy change on the consolidated balance
sheet as at December 31, 2004 was as follows:

    Increase in other assets                                        $      2
    -------------------------------------------------------------------------

    Decrease in income taxes payables                               $      1
    Increase in long-term debt                                           216
    Decrease in debentures' interest obligation                           38
    Decrease in minority interest                                         68
    -------------------------------------------------------------------------

    Decrease in other paid-in-capital                               $     75
    Increase in retained earnings                                          2
    Decrease in currency translation adjustment                           34
    -------------------------------------------------------------------------

    The impact of this accounting policy change on the consolidated
statements of income and retained earnings was as follows:

                                                            Three        Six
                                                           months     months
                                                            ended      ended
                                                          June 30,   June 30,
                                                             2004       2004
    -------------------------------------------------------------------------

    Increase in interest expense                         $     11   $     19
    Decrease in income taxes                                   (5)        (7)
    Decrease in minority interest                              (1)        (2)
    -------------------------------------------------------------------------
    Decrease in net income                                     (5)       (10)
    Decrease in financing charges on Preferred Securities
     and other paid-in-capital                                  5         10
    -------------------------------------------------------------------------
    Change in net income available to Class A
     Subordinate Voting and Class B Shareholders         $      -   $      -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    There was no impact of this accounting policy change on reported basic
and diluted earnings per Class A Subordinate Voting or Class B Share.

    Comparative Period Amounts

    European Average Dollar Content per Vehicle

    Our reporting of European production sales and European average dollar
content per vehicle has historically included sales related to the complete
vehicle assembly business carried out by our Magna Steyr group (see "Magna
Steyr" discussion in "SEGMENTS" below). Effective with the first quarter of
2004, European production sales and complete vehicle assembly sales have been
presented separately, however, European average dollar content per vehicle
continued to include both European production sales and European complete
vehicle assembly sales.

    Complete vehicle assembly sales are calculated as follows:

    -   where assembly programs are accounted for on a value-added basis,
        100% of the selling price to the OEM customer is included in complete
        vehicle assembly sales; and

    -   where assembly programs are accounted for on a full-cost basis,
        complete vehicle assembly sales include 100% of the selling price to
        the OEM customer, less intercompany parts purchases made by our
        assembly divisions. These intercompany purchases are included in
        European production sales.

    Effective with the first quarter of 2005, European average dollar content
per vehicle includes only European production sales. The comparative period
European average dollar content per vehicle has been restated to conform to
the current period's presentation. We do not have any complete vehicle
assembly sales in North America.

    Average Foreign Exchange

                        For the three months        For the six months
                           ended June 30,             ended June 30,
                        --------------------       -------------------
                           2005      2004   Change    2005      2004   Change
    -------------------------------------------------------------------------
    1 Canadian dollar
     equals U.S. dollars   0.803     0.735   + 9%     0.810     0.747   + 8%
    1 euro equals U.S.
     dollars               1.255     1.206   + 4%     1.283     1.227   + 5%
    1 British pound
     equals U.S. dollars   1.850     1.807   + 2%     1.871     1.824   + 3%
    -------------------------------------------------------------------------

    The preceding table reflects the average foreign exchange rates between
the most common currencies in which we conduct business and our U.S. dollar
reporting currency. The significant changes in these foreign exchange rates
impacted the reported U.S. dollar amounts of our sales, expenses and income.
    The results of operations whose functional currency is not the U.S.
dollar are translated into U.S. dollars using the average exchange rates in
the table above for the relevant period. Throughout this MD&A, reference is
made to the impact of translation of these operations on reported U.S. dollar
amounts where relevant.
    Our results can also be affected by the impact of movements in exchange
rates on foreign currency transactions (such as raw material purchases
denominated in foreign currencies). However, as a result of historical hedging
programs employed by us, primarily in Canada, foreign currency transactions in
the current period have not been fully impacted by the recent movements in
exchange rates. We record foreign currency transactions at the hedged rate
where applicable.
    Finally, holding gains and losses on foreign currency denominated
monetary items, which are recorded in selling, general and administrative
expenses, impact reported results.

    RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED JUNE 30, 2005
    -------------------------------------------------------------------------

    Sales                                         For the three months
                                                     ended June 30,
                                                  --------------------
                                                     2005      2004    Change
    -------------------------------------------------------------------------

    Vehicle Production Volumes (millions of units)
      North America                                   4.126     4.176   - 1%
      Europe                                          4.269     4.423   - 3%
    -------------------------------------------------------------------------

    Average Dollar Content Per Vehicle
      North America                                $    709  $    595  + 19%
      Europe                                       $    313  $    269  + 16%
    -------------------------------------------------------------------------

    Sales
      North American Production                    $  2,927  $  2,484  + 18%
      European Production                             1,336     1,188  + 12%
      European Complete Vehicle Assembly              1,054     1,144   - 8%
      Tooling, Engineering and Other                    541       297  + 82%
    -------------------------------------------------------------------------
      Total Sales                                  $  5,858  $  5,113  + 15%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total sales reached a record level in the second quarter of 2005,
increasing 15% or $745 million to $5.9 billion compared to $5.1 billion for
the second quarter of 2004.

    North American Production Sales

    North American production sales increased 18% or $443 million to
$2.9 billion for the second quarter of 2005 compared to $2.5 billion for the
second quarter of 2004. This increase in production sales reflects a 19%
increase in our North American average dollar content per vehicle, partially
offset by a 1% decrease in North American vehicle production volumes.
    Our average dollar content per vehicle grew by 19% or $114 to $709 for
the second quarter of 2005 compared to $595 for the second quarter of 2004,
primarily as a result of:

    -   the launch of new programs during or subsequent to the second quarter
        of 2004, including:
        -  the Chevrolet Cobalt and Pontiac Pursuit;
        -  the Hummer H3;
        -  the Cadillac STS;
        -  the Ford Mustang;
        -  the Mercury Mariner; and
        -  the Dodge Charger;
    -   the acquisition of the New Venture Gear, Inc. ("NVG") business in
        September 2004;
    -   an increase in reported U.S. dollar sales due to the strengthening of
        the Canadian dollar against the U.S. dollar; and
    -   increased production on certain programs, including Chrysler minivan,
        Pacifica and 300/300C programs and the Ford F-150 program.

    These increases were partially offset by:

    -   the impact of lower volumes and/or content on certain high content
        programs including:
        -  the Ford Freestar and Mercury Monterey;
        -  the Dodge Ram Pickup;
        -  the Ford Escape and Mazda Tribute;
        -  the GMT800 platform; and
        -  the Ford Explorer and Mercury Mountaineer;
    -   programs that ended production during or subsequent to the second
        quarter of 2004; and
    -   incremental customer price concessions.

    European Production Sales

    European production sales increased 12% or $148 million to $1.3 billion
for the second quarter of 2005 compared to $1.2 billion for the second quarter
of 2004. This increase in production sales reflects a 16% increase in our
European average dollar content per vehicle, partially offset by a 3% decline
in European vehicle production volumes.
    Our average dollar content per vehicle grew by 16% or $44 to $313 for the
second quarter of 2005 compared to $269 for the second quarter of 2004,
primarily as a result of:

    -   programs that launched during or subsequent to the second quarter of
        2004, including:
        -  the Mercedes A-Class and B-Class;
        -  the Land Rover Discovery; and
        -  the BMW 1-Series;
    -   an increase in reported U.S. dollar sales due to the strengthening of
        European currencies against the U.S. dollar, in particular the euro;
    -   the acquisition of the European operations of NVG; and
    -   increased production on certain programs.

    These increases were partially offset by lower production on certain
programs, including the Mercedes E-Class, incremental customer price
concessions, and the end of production on all MG Rover programs as a result of
MG Rover Group Limited ("MG Rover") being placed into administration on April
8, 2005 in the United Kingdom, which is similar to Chapter 11 bankruptcy
protection in the United States.

    European Complete Vehicle Assembly Sales

    European complete vehicle assembly sales decreased 8% or $90 million to
$1.05 billion for the second quarter of 2005 compared to $1.14 billion for the
second quarter of 2004. This decrease in sales is primarily the result of
lower assembly volumes for the BMW X3 and Mercedes E-Class 4MATIC.

    These decreases were partially offset by:

    -   an increase in reported U.S. dollar sales due to the strengthening of
        the euro against the U.S. dollar:
    -   higher volumes for our other assembly contracts, including:
        -  the Jeep Grand Cherokee;
        -  the Saab 93 Convertible; and
        -  the Chrysler Voyager; and
    -   the start of assembly in June 2005 of the Chrysler 300 for
        distribution in European markets and certain other markets outside
        North America.

    Tooling, Engineering and Other

    Tooling, engineering and other sales increased 82% or $244 million to
$541 million for the second quarter of 2005 compared to $297 million for the
second quarter of 2004. The increase was primarily attributable to tooling and
engineering revenue related to programs which launched in 2005 or for upcoming
program launches and an increase in reported U.S. dollar sales due to the
strengthening of the Canadian dollar, euro, and British pound, each against
the U.S. dollar. Tooling and engineering revenue recorded in the second
quarter of 2005 relates to a number of programs, including:

    -   the Ford Fusion, Mercury Milan and Lincoln Zephyr launching in 2005;
    -   the next generation Mini Cooper launching subsequent to the second
        quarter of 2005;
    -   the Mercedes M-Class which launched in 2005; and
    -   the Hummer H3 which launched in 2005.

    Gross Margin

    Gross margin increased $17 million to $793 million for the second quarter
of 2005 compared to $776 million for the second quarter of 2004. Gross margin
as a percentage of total sales decreased to 13.5% for the second quarter of
2005 compared to 15.2% for the second quarter of 2004.

    Gross margin as a percentage of sales was negatively impacted by:

    -   an increase in commodity prices, combined with lower scrap steel
        prices;
    -   the decrease in production volumes for several of our high content
        programs including the Ford Freestar and Mercury Monterey, the Ford
        Escape and Mazda Tribute, the GMT800 platform, and the Ford Explorer
        and Mercury Mountaineer;
    -   inefficiencies at certain facilities;
    -   the acquisition of the NVG business, which currently operates at
        margins that are lower than our consolidated average gross margin;
    -   incremental customer price concessions;
    -   costs incurred at new facilities in preparation for upcoming launches
        or for programs that have not fully ramped up production, including:
        -  a new frame facility in Kentucky for the next generation Ford
           Explorer and F-Series Super Duty pickup trucks;
        -  a new stamping facility in Sonora, Mexico to support the launch of
           the Ford Fusion, Mercury Milan and Lincoln Zephyr; and
        -  a new fascia moulding and paint facility in Georgia to support the
           launch of the Mercedes M-Class and R-Class;
    -   the strengthening of the euro and British pound, each against the
        U.S. dollar, since proportionately more of our consolidated gross
        margin was earned in Europe during the second quarter of 2005 than in
        the second quarter of 2004 and, on average, our European operations
        operate at margins that are currently lower than our consolidated
        average margin;
    -   lower volumes in both North America and Europe; and
    -   an increase in tooling, and other sales that earn low or no margins.

    Partially offsetting these decreases in gross margin as a percentage of
sales were:

    -   operational improvements at certain facilities;
    -   the closure during 2004 of certain underperforming divisions in
        Europe;
    -   decreased complete vehicle assembly sales for the BMW X3, which has a
        lower gross margin percentage than our consolidated average gross
        margin because the costs of this vehicle assembly contract are
        reflected on a full-cost basis in the selling price of the vehicle;
        and
    -   incremental gross margin earned on new program launches.

    Depreciation and Amortization

    Depreciation and amortization costs increased 24% or $33 million to
$173 million for the second quarter of 2005 compared to $140 million for the
second quarter of 2004. The increase in depreciation and amortization for the
second quarter of 2005 was primarily due to:

    -   the acquisition of the NVG business;
    -   amortization of fair value increments related to the privatizations
        of Tesma, Decoma and Intier;
    -   increased assets employed in the business to support future growth;
        and
    -   an increase in reported U.S. dollar depreciation and amortization due
        to the strengthening of the euro, Canadian dollar and British pound,
        each against the U.S. dollar.

    Selling, General and Administrative ("SG&A")

    SG&A expenses as a percentage of sales decreased to 5.0% for the second
quarter of 2005 compared to 5.8% for the second quarter of 2004. SG&A expenses
decreased $6 million to $292 million for the second quarter of 2005 compared
to $298 million for the second quarter of 2004.

    During the second quarter of 2005, we recorded the following items in
SG&A expenses:

    -   a $16 million gain on disposal of a non-core seat component facility
        in North America;
    -   an $18 million foreign currency gain on the repatriation of funds
        from Europe; and
    -   $9 million of restructuring charges related to two facilities in
        Europe and the privatizations of Tesma, Decoma and Intier.

    Under Canadian generally accepted accounting principles ("GAAP"), we are
required to recognize in income a gain or loss equal to the appropriate
portion of the cumulative translation adjustment account when there is a
reduction in our net investment in non-U.S. dollar based operations. During
the second quarter of 2005, we repatriated funds from Europe, resulting in an
$18 million foreign currency gain.
    Excluding these items, the remaining $19 million increase in SG&A
expenses is primarily a result of:

    -   an increase in reported U.S. dollar expenses due to the strengthening
        of the euro and Canadian dollar, each against the U.S. dollar;
    -   increased SG&A spending as a result of the acquisition of the NVG
        business; and
    -   higher infrastructure costs to support upcoming launches.

    Interest Expense

    Interest expense decreased $8 million to $2 million for the second
quarter of 2005 compared to $10 million for the second quarter of 2004,
primarily as a result of:

    -   a reduction of interest expense related to the Preferred Securities
        which were redeemed for cash in the third quarter of 2004; and
    -   a reduction in outstanding long-term debt as a result of the
        repayments of government debt and other long-term debt during 2004
        and 2005.

    These reductions were partially offset by an increase in interest expense
that has been accreted on the senior unsecured zero-coupon notes that were
issued in connection with the acquisition of the NVG business.

    Operating Income

    Operating income decreased 2% or $8 million to $323 million for the
second quarter of 2005 compared to $331 million for the second quarter of
2004. The discussions above provide an analysis of the $8 million decrease in
our operating income. In particular, on a comparable basis, our operating
income was negatively impacted by:

    -   reduced volumes on certain high content programs;
    -   increased commodity prices;
    -   costs incurred at new facilities in preparation for upcoming launches
        or for programs that have not fully ramped up production;
    -   incremental price concessions;
    -   restructuring costs and impairment charges related substantially to
        three European facilities;
    -   increased depreciation and amortization as a result of the
        privatizations of Tesma, Decoma and Intier and the acquisition of the
        NVG business; and
    -   operating inefficiencies at certain facilities.

    Partially offsetting these decreases was the positive impact of:

    -   realization of a foreign currency gain on the repatriation of funds
        from Europe;
    -   a gain on the disposal of a non-core seat component facility;
    -   programs that launched during or subsequent to the second quarter of
        2004;
    -   the acquisition of the NVG business; and
    -   operational improvements at certain facilities.

    Income Taxes

    Our effective income tax rate on operating income (excluding equity
income) decreased to 30.5% for the second quarter of 2005 from 35.4% for the
second quarter of 2004. In the second quarter of 2005 we benefited from the
realization of a foreign currency gain on the repatriation of funds from
Europe, which was partially offset by an impairment charge recorded at a
European facility, both of which have not been fully tax effected.
    Excluding these items, the effective income tax rate was 31.8% for the
second quarter of 2005 and 35.4% for the second quarter of 2004. The decrease
in the effective income tax rate is primarily the result of a decrease in
income tax rates in Austria and Mexico, an increase in utilization of losses
not previously benefited and a reduction in losses not benefited.

    Minority Interest

    Minority interest expense decreased $27 million because no minority
interest expense was recorded in the second quarter of 2005 as a result of the
privatizations of Tesma, Decoma and Intier.

    Net Income

    Net income increased 20% or $37 million to $225 million for the second
quarter of 2005 compared to $188 million for the second quarter of 2004. The
increase in net income is a result of a decrease in income taxes and minority
interest of $18 million and $27 million, respectively, partially offset by an
$8 million decrease in operating income (see above).

    Earnings per Share
                                                  For the three months
                                                     ended June 30,
                                                  --------------------
                                                     2005      2004    Change
    -------------------------------------------------------------------------

    Earnings per Class A Subordinate Voting or
     Class B Share
      Basic                                        $   2.10  $   1.94   + 8%
      Diluted                                      $   2.06  $   1.93   + 7%
    -------------------------------------------------------------------------

    Average number of Class A Subordinate Voting
     and Class B Shares outstanding (millions)
      Basic                                           107.2      96.8  + 11%
      Diluted                                         109.9      97.4  + 13%
    -------------------------------------------------------------------------

    Diluted earnings per share increased 7% or $0.13 to $2.06 for the second
quarter of 2005 compared to $1.93 for the second quarter of 2004. Included in
the $0.13 increase in diluted earnings per share are the following items in
the second quarter of 2005, which totalled $0.13 per share:

    -   realization of a foreign currency gain on the repatriation of funds
        from Europe; and
    -   a gain on the disposal of a non-core seat component facility;
        partially offset by
    -   restructuring costs and impairment charges related substantially to
        three European facilities.

    Excluding these items, diluted earnings per share was unchanged from the
second quarter of 2004 as a result of an increase in the weighted average
number of diluted shares outstanding during the quarter, offset by the
increase in net income (excluding the above items).
    The increase in the weighted average number of diluted shares outstanding
was a result of:

    -   approximately 10.7 million additional shares that were included in
        the weighted average number of shares outstanding as a result of the
        privatization of Tesma, Decoma and Intier;
    -   approximately 1.1 million additional shares that are issuable as a
        result of assuming Decoma's obligation for its 6.5% Convertible
        Subordinated Debentures;
    -   0.4 million additional stock options that were exercised during 2004
        and the first half of 2005; and
    -   an increase in the number of options outstanding as a result of
        assuming the Tesma, Decoma and Intier stock options.

    This increase in the weighted average number of shares outstanding was
partially offset by a lower average trading price for our Class A Subordinate
Voting Shares, which results in fewer options becoming dilutive.

    Return on Funds Employed

    An important financial ratio that we use across all of our operating
units to measure return on investment is return on funds employed ("ROFE")(1).
    ROFE for the second quarter of 2005 was 21.1%, a decline from 28.7% for
the second quarter of 2004. Included in ROFE in the second quarter of 2005 are
the following items discussed above, which positively impacted ROFE by 1.3%:

    -   realization of a foreign currency gain on the repatriation of funds
        from Europe; and
    -   a gain on the disposal of a non-core seat component facility;
        partially offset by
    -   restructuring costs and impairment charges related substantially to
        three European facilities.

    Excluding these items, the remaining 8.9% decrease in ROFE can be
attributed to a decrease in our EBIT (as discussed above) and an increase in
our average funds employed for the second quarter of 2005 compared to the
second quarter of 2004. The increase in our average funds employed was
primarily a result of:

    -   the acquisition of the NVG business;
    -   the privatizations of Tesma, Decoma and Intier, which added
        approximately $600 million of funds employed;
    -   an increase in our average investment in non-cash working capital;
        and
    -   increased funds employed for new facilities associated with new or
        upcoming launches.

    SEGMENTS
    -------------------------------------------------------------------------

                                      For the three months ended June 30,
                                  -------------------------------------------
                                           2005                  2004
                                  --------------------- ---------------------
                                     Total                 Total
                                     sales      EBIT       sales      EBIT
    -------------------------------------------------------------------------

    Decoma                         $    799   $     19   $    689   $     44
    Intier                            1,518         86      1,410         67
    Tesma                               369         22        341         35
    Magna Steyr                       1,771         79      1,471         63
    Other Automotive Operations       1,458        101      1,247        125
    Corporate and Other(i)              (57)        18        (45)         7
    -------------------------------------------------------------------------
                                   $  5,858   $    325   $  5,113   $    341
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (i) Included in Corporate and Other are intercompany fee revenue, and
        intercompany sales eliminations.

    The sales amounts in the following discussion are before intersegment
eliminations.

    -------------------------------------------------------------------------
    (1) ROFE is defined as EBIT(2) divided by the average funds employed(3)
        for the period.
    (2) EBIT is defined as operating income as presented on our unaudited
        interim consolidated financial statements before net interest expense
        and intercompany dividend income.
    (3) Funds employed is defined as long-term assets, excluding future tax
        assets and investments in subsidiaries, plus non-cash operating
        assets and liabilities(4).
    (4) non-cash operating assets and liabilities are defined as the sum of
        accounts receivable, inventory, income taxes recoverable and prepaid
        assets less the sum of accounts payable, accrued salaries and wages,
        other accrued liabilities, income taxes payable and deferred
        revenues.

    Decoma

    Sales

    Decoma's sales increased by 16% or $110 million to $799 million for the
second quarter of 2005 from $689 million for the second quarter of 2004. The
increase in sales is primarily the result of an increase in Decoma's North
American and European average dollar content per vehicle, partially offset by
a 1% decline in North American vehicle production volumes and a 3% decline in
European vehicle production volumes.
    In North America, the increase in Decoma's average dollar content per
vehicle was primarily attributable to:

    -   an increase in reported U.S. dollar sales due to the strengthening of
        the Canadian dollar against the U.S. dollar; and
    -   increased content and/or production on several programs, related
        principally to the launch of new programs during or subsequent to the
        second quarter of 2004 including:
    -   the Chrysler 300/300C and Dodge Magnum;
    -   the Chevrolet Equinox;
    -   the Mercedes M-Class; and
    -   the Jeep Grand Cherokee.

    These increases were partially offset by incremental customer price
concessions and by lower volumes on certain high content Ford and GM programs.
    In Europe, Decoma's average dollar content per vehicle growth was
primarily attributable to:

    -   new facility and program launches including:
    -   the launch of the fascia and front end module for the Mercedes A-
        Class;
    -   the ramp up of the fascia and front end module for the Volkswagen
        City Car; and
    -   the launch of various Porsche, Audi and other Mercedes programs; and
    -   the increase in reported U.S. dollar sales due to the strengthening
        of European currencies against the U.S. dollar.

    These increases were partially offset by incremental customer price
concessions.

    EBIT

    Decoma's EBIT decreased 57% or $25 million to $19 million for the second
quarter of 2005 compared to $44 million for the second quarter of 2004. This
decrease is primarily attributable to:

    -   inefficiencies at facilities in Europe, including increased losses
        associated with under-utilized paint capacity, performance issues and
        program launch costs;
    -   restructuring costs and impairment charges related to two facilities
        in Europe;
    -   operating losses at Decoma's new fascia moulding and paint facility
        in Georgia as it launches and ramps up production on new Mercedes
        programs;
    -   the impact of lower vehicle production volumes at both Ford and GM;
        and
    -   incremental customer price concessions and raw material costs.

    These losses were partially offset by operational improvements realized
at certain facilities, the closure of the Anotech facility early in 2005, and
contributions from new launches.

    Intier

    Sales

    Intier's sales increased by 8% or $108 million to $1.5 billion for the
second quarter of 2005 compared to $1.4 billion for the second quarter of
2004. The increase in sales reflects increases in Intier's average dollar
content per vehicle in both North America and Europe and an increase in
tooling, engineering and other sales, partially offset by a 1% decline in
North American vehicle production volumes and a 3% decline in European vehicle
production volumes.
    In North America, the increase in Intier's average dollar content per
vehicle was primarily attributable to:

    -   new programs that launched during or subsequent to the second quarter
        of 2004, including:
    -   the complete interior, excluding seats, for the Hummer H3;
    -   the complete seats for the Chevrolet Cobalt and the Pontiac Pursuit;
    -   the complete seats for the Mercury Mariner; and
    -   the interior integration, overhead system, instrument panel and door
        panels for the Cadillac STS; and
    -   an increase in reported U.S. dollar sales due to the strengthening of
        the Canadian dollar against the U.S dollar.

    These increases were partially offset by:

    -   incremental customer price concessions;
    -   lower volumes on certain high content programs including:
    -   the Ford Freestar and Mercury Monterey;
    -   the Ford Explorer and Mercury Mountaineer; and
    -   the GMT800 platform; and
    -   reduced content for the Dodge Ram Pickup.

    In Europe, the increase in Intier's average dollar content per vehicle
was primarily attributable to:

    -   the launch of new programs during or subsequent to the second quarter
        of 2004 including:
    -   the cargo management system and other interior trim for the Audi A6;
    -   a side door latch for the Seat Altea and Volkswagen Passat;
    -   the door panels for the BMW 1-Series;
    -   the floorspace for the Mercedes A-Class; and
    -   a modular side door latch for a number of Audi programs; and
    -   an increase in reported U.S. dollar sales due to the strengthening of
        the euro and the British pound, each against the U.S. dollar.

    These increases were partially offset by incremental customer price
concessions.

    EBIT

    Intier's EBIT increased by 28% or $19 million to $86 million for the
second quarter of 2005 compared to $67 million for the second quarter of 2004.
The increase is primarily a result of:

    -   a $16 million gain on the sale of a non-core seat component facility;
    -   additional gross margin earned on sales from new product launches;
    -   an increase in reported U.S. dollar EBIT due to the strengthening of
        the Canadian dollar, euro and British Pound, each against the U.S.
        dollar; and
    -   operational improvements at certain facilities.

    These increases in EBIT have been partially offset by:

    -   increased raw material prices, including purchased components;
    -   incremental customer price concessions; and
    -   reduced operating margin resulting from lower vehicle volumes on
        certain of Intier's high content programs.

    Tesma

    Sales

    Tesma's sales increased by 8% or $28 million to $369 million for the
second quarter of 2005 compared to $341 million for the second quarter of
2004. The increase in sales was a result of maintaining a consistent average
dollar content per vehicle in North America and an increase in European
average dollar content per vehicle, partially offset by a 1% decline in North
American vehicle production volumes and a 3% decline in European vehicle
production volumes.
    In North America, Tesma's average dollar content per vehicle remained
consistent with the prior year, as an increase in reported U.S. dollar sales
due to the strengthening of the Canadian dollar against the U.S. dollar was
substantially offset by incremental customer price concessions and production
volume declines in North America. In particular, production volumes on certain
GM and Ford programs for which Tesma has high content declined even further,
including:

    -   the GM GEN IV engine and 4L60E transmission which are installed in
        GM's larger pickup truck and sport utility vehicles ("SUVs");
    -   the GM L850/LE5 engine program used in smaller compact cars and SUVs;
    -   the GM Line 6 engine installed into mid-size SUVs;
    -   the GM Line 4 and 5 engine which are installed into GM's mid-size
        pickup trucks; and
    -   the Ford Modular V8 engine which is used in Ford's high-volume pickup
        trucks and larger cars.

    Partially offsetting these sales decreases were higher volumes on certain
programs including:

    -   the launch of assemblies including an integrated front cover with
        water pump, oil pans and flexplates for GM's 3.9L engine program;
    -   water pump modules and tensioner assemblies for the 5.7L Hemi engine
        for the Dodge Durango, Chrysler 300/300C and Dodge Magnum;
    -   various stamped products for Nissan and Honda launched during 2005;
    -   various stamped components included in 6-speed and continuously
        variable transmission applications for Ford;
    -   the oil pumps supplied for Ford's 5R110 transmission;
    -   tensioner assemblies supplied to Volkswagen, Ford and Honda; and
    -   engine front cover and water pump modules for Hyundai's high-volume
        Lambda V6 engine program.

    In Europe, Tesma's average dollar content per vehicle increased as a
result of:

    -   higher reported U.S. dollar sales as a result of the strengthening of
        the euro against the U.S. dollar;
    -   higher shipments of fuel filler pipes for Ford's high-volume Focus
        program;
    -   increased volumes and content for stainless steel fuel tank
        assemblies for Audi's D3 platform; and
    -   volume increases on water pumps for Fiat which launched late in 2004.

    These increases were partially offset by lower volumes of stainless steel
fuel tank assemblies for the Volkswagen Beetle for which production has been
suspended until the second half of 2005 and incremental customer price
concessions.

    EBIT

    Tesma's EBIT decreased 37% or $13 million to $22 million for the second
quarter of 2005 compared to $35 million for the second quarter of 2004. The
decrease in EBIT was largely a result of:

    -   lower operating margin earned as a result of lower sales levels,
        especially at a number of North American facilities with a high
        concentration of sales to GM;
    -   increased material costs, including the impact of higher steel and
        purchased components costs;
    -   incremental customer price concessions;
    -   higher operating losses due to operating issues at certain facilities
        in North America;
    -   lower capacity utilization and increased infrastructure and carrying
        costs at certain facilities that have made significant investments in
        preparation for program launches.

    Magna Steyr

    Sales

    Magna Steyr's sales increased by 20% or $300 million to $1.8 billion for
the second quarter of 2005 compared to $1.5 billion for the second quarter of
2004. The increase in sales was a result of:

    -   the acquisition of the NVG business;
    -   an increase in reported U.S. dollar sales due to the strengthening of
        the euro against the U.S. dollar; and
    -   an increase in transfer case sales related to programs launched
        during or subsequent to the second quarter of 2004, including the
        Land Rover Discovery and the Chrysler 300/300C at Magna Drivetrain.

    These increases were partially offset by a decrease in complete vehicle
assembly sales.
    Magna Steyr's complete vehicle assembly volumes for the second quarter of
2005 and the second quarter of 2004 were as follows:

                                                  For the three months
                                                     ended June 30,
                                                  --------------------
    Complete Vehicle Assembly Volumes (Units)        2005      2004    Change
    -------------------------------------------------------------------------

    Full-Costed                                      39,526    43,910  - 10%
    Value-Added                                      22,078    16,388  + 35%
    -------------------------------------------------------------------------
                                                     61,604    60,298   + 2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The terms of Magna Steyr's various vehicle assembly contracts differ with
respect to the ownership of components and supplies related to the assembly
process and the method of determining the selling price to the OEM customer.
Under certain contracts, Magna Steyr is acting as principal, and purchased
components and systems in assembled vehicles are included in its inventory and
cost of sales. These costs are reflected on a full cost basis in the selling
price of the final assembled vehicle to the OEM customer. Contracts to
assemble Mercedes E Class and G Class, Saab 93 Convertible and BMW X3 vehicles
are accounted for in this manner. Other contracts provide that third party
components and systems are held on consignment by Magna Steyr, and the selling
price to the OEM customer reflects a value-added assembly fee only. Contracts
to assemble the Chrysler Voyager, Jeep Grand Cherokee and Chrysler 300 are
accounted for in this manner.
    Production levels of the various vehicles assembled by Magna Steyr have
an impact on the level of its sales and profitability. In addition, the
relative proportion of programs accounted for on a full cost basis and
programs accounted for on a value-added basis also impact Magna Steyr's levels
of sales and operating margin percentage, but may not necessarily affect its
overall level of profitability. Assuming no change in total vehicles
assembled, a relative increase in the assembly of vehicles accounted for on a
full cost basis has the effect of increasing the level of total sales and,
because purchased components are included in cost of sales, profitability as a
percentage of total sales is reduced. Conversely, a relative increase in the
assembly of vehicles accounted for on a value-added basis has the effect of
reducing the level of total sales and increasing profitability as a percentage
of total sales.
    Complete vehicle assembly sales decreased 8% or $90 million to
$1.05 billion for the second quarter of 2005 compared to $1.14 billion for the
second quarter of 2004. This decrease in sales is primarily the result of
lower assembly volumes for the BMW X3 and Mercedes E-Class 4MATIC.

    These decreases were partially offset by:

    -   an increase in reported U.S. dollar sales related to the
        strengthening of the euro against the U.S. dollar;
    -   higher volumes for other assembly contracts, including:
        -  the Jeep Grand Cherokee;
        -  the Saab 93 Convertible; and
        -  the Chrysler Voyager; and
    -   the start of assembly in June 2005 of the Chrysler 300 for
        distribution in certain European markets and other markets outside
        North America.

    EBIT

    Magna Steyr's EBIT increased by 25% or $16 million to $79 million for the
second quarter of 2005 compared to $63 million for the second quarter of 2004.
The increase in EBIT is primarily a result of:

    -   the recovery of costs associated with the cancellation of an
        engineering program;
    -   the acquisition of the NVG business;
    -   an increase in reported U.S. dollar EBIT as a result of the
        strengthening of the euro against the U.S. dollar; and
    -   the increase in operating margin generated by increased sales,
        including the launches of the Land Rover Discovery and the Chrysler
        300/300C at Magna Drivetrain.

    Partially offsetting these increases were:

    -   a reduction in EBIT as a result of a one-time payment received in the
        second quarter of 2004 relating to prior year pricing issues on a
        certain production program; and
    -   lower operating margin earned as a result of the decrease in complete
        vehicle assembly sales.

    Other Automotive Operations

    Sales

    Our Other Automotive Operations' sales increased 17% or $211 million to
$1.5 billion for the second quarter of 2005 compared to $1.2 billion for the
second quarter of 2004. The increase in sales was a result of an increase in
tooling sales and increases in the segment's North American and European
average dollar content per vehicle, partially offset by a 1% decline in North
American vehicle production volumes and a 3% decline in European vehicle
production volumes.
    In North America, the increase in average dollar content per vehicle is
primarily a result of:

    -   an increase in reported U.S. dollar sales due to the strengthening of
        the Canadian dollar against the U.S. dollar;
    -   increased volumes on certain programs including:
        -  the Dodge Durango;
        -  the Saturn ION; and
        -  the Ford Escape; and
    -   the launch of new programs during or subsequent to the second quarter
        of 2004 including:
        -  various stampings for the Ford Mustang;
        -  Class A stampings for the Mercedes M-Class; and
        -  Class A stampings for the Chrysler 300/300C and Dodge Magnum.

    These increases were partially offset by:

    -   lower volumes on certain high content GM and Ford programs, in
        particular:
    -   the GMT800 platform; and
    -   the Ford Freestar and Mercury Monterey; and
    -   incremental customer price concessions.

    In Europe, the increase in average dollar content per vehicle is
primarily the result of an increase in reported U.S. dollar sales due to the
strengthening of the euro against the U.S. dollar, partially offset by
reductions in volumes on several programs including the Smart and various
Volkswagen stampings and assemblies, and incremental price concessions.
    Tooling sales increased as a result of revenues earned on tooling for
several programs including:

    -   the Ford Fusion, Mercury Milan and Lincoln Zephyr; and
    -   the Mercedes M-Class.

    EBIT

    Our Other Automotive Operations' EBIT decreased 19% or $24 million to
$101 million for the second quarter of 2005 compared to $125 million for the
second quarter of 2004. The decrease in EBIT is primarily a result of:

    -   lower operating margin earned on lower sales on certain high content
        programs;
    -   incremental customer price concessions;
    -   costs incurred to support facilities in Kentucky and Mexico;
    -   restructuring costs incurred at a facility in Europe; and
    -   increased commodity prices for steel and resins combined with lower
        scrap steel revenues.

    These decreases were partially offset by higher gross margin earned from
programs which launched during or subsequent to the second quarter of 2004.

    Corporate and Other

    Corporate and Other EBIT increased 157% or $11 million to $18 million for
the second quarter of 2005 compared to $7 million for the second quarter of
2004. The increase in EBIT is primarily a result of:

    -   an $18 million foreign currency gain on the repatriation of funds
        from Europe;
    -   increased affiliation and other fee income earned as a result of
        higher sales; and
    -   provisions recorded during the second quarter of 2004 against the
        carrying value of certain long-term assets.

    These increases in EBIT were partially offset by:

    -   increased stock compensation expense as a result of the assumption of
        the stock option plans of Tesma, Intier and Decoma;
    -   restructuring charges related to the privatizations of Tesma, Decoma
        and Intier; and
    -   increased customer price concessions.

    RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2005
    -------------------------------------------------------------------------

    Sales                                          For the six months
                                                     ended June 30,
                                                  --------------------
                                                     2005      2004    Change
    -------------------------------------------------------------------------

    Vehicle Production Volumes (millions of units)
      North America                                   8.090     8.310   - 3%
      Europe                                          8.385     8.765   - 4%
    -------------------------------------------------------------------------

    Average Dollar Content Per Vehicle
      North America                                $    716  $    600  + 19%
      Europe                                       $    317  $    273  + 16%
    -------------------------------------------------------------------------

    Sales
      North American Production                    $  5,796  $  4,988  + 16%
      European Production                             2,662     2,397  + 11%
      European Complete Vehicle Assembly              2,180     2,156   + 1%
      Tooling, Engineering and Other                    938       675  + 39%
    -------------------------------------------------------------------------
      Total Sales                                  $ 11,576  $ 10,216  + 13%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    North American Production Sales

    North American production sales increased 16% or $808 million to $5.8
billion for the six months ended June 30, 2005 compared to $5.0 billion for
the six months ended June 30, 2004. This increase in production sales reflects
a 19% increase in our North American average dollar content per vehicle,
partially offset by a 3% decline in North American vehicle production volumes.
    Our average dollar content per vehicle grew by 19% or $116 to $716 for
the six months ended June 30, 2005 compared to $600 for the six months ended
June 30, 2004, primarily as a result of:

    -   the launch of new programs during or subsequent to the first half of
        2004, including:
        -  the Chevrolet Cobalt and Pontiac Pursuit;
        -  the Cadillac STS;
        -  the Chevrolet Equinox;
        -  the Chrysler 300/300C;
        -  the Mercury Mariner;
        -  the Ford Mustang;
        -  the Mercedes M-Class;
        -  the Jeep Grand Cherokee; and
        -  the Hummer H3;
    -   the acquisition of the NVG business in September 2004;
    -   an increase in reported U.S. dollar sales due to the strengthening of
        the Canadian dollar against the U.S. dollar; and
    -   increased production on certain programs, including the Chrysler
        minivans and the Ford F-150.

    These increases were partially offset by:

    -   the impact of lower volumes and/or content on certain programs
        including:
        -  the GMT800 platform;
        -  the Ford Freestar and Mercury Monterey;
        -  the Ford Explorer and Mercury Mountaineer;
        -  the Dodge Ram Pickup; and
        -  the Ford Expedition;
    -   the end of production on certain programs during or subsequent to the
        first half of 2004; and
    -   incremental customer price concessions.

    European Production Sales

    European production sales increased 11% or $265 million to $2.7 billion
for the six months ended June 30, 2005 compared to $2.4 billion for the six
months ended June 30, 2004. This increase in sales reflects a 16% increase in
our European average dollar content per vehicle, partially offset by a 4%
decline in European vehicle production volumes.
    Our average dollar content per vehicle grew by 16% or $44 to $317 for the
six months ended June 30, 2005 compared to $273 for the six months ended June
30, 2004, primarily as a result of:

    -   an increase in reported U.S. dollar sales due to the strengthening of
        European currencies against the U.S. dollar, in particular the euro;
    -   programs that launched during or subsequent to the first half of
        2004, including:
        -  the Land Rover Discovery;
        -  the Mercedes A-Class; and
        -  the BMW 1-Series;
    -   the acquisition of the European operations of NVG; and
    -   increased production on certain programs.

    These increases were partially offset by:

    -   lower production on certain programs, including the Mercedes E-Class;
    -   incremental customer price concessions; and
    -   the end of production on all MG Rover programs as a result of the MG
        Rover situation.

    European Complete Vehicle Assembly Sales

    European complete vehicle assembly sales increased 1% or $24 million to
$2.18 billion for the six months ended June 30, 2005 compared to $2.16 billion
for the six months ended June 30, 2004. This increase in sales is primarily
the result of:

    -   an increase in reported U.S. dollar sales related to the
        strengthening of the euro against the U.S. dollar;
    -   an increase in complete vehicle assembly volumes for the BMW X3; and
    -   the start of assembly in June 2005 of the Chrysler 300 for
        distribution in European markets and certain other markets outside
        North America.

    These increases were partially offset by lower assembly volumes for the
Mercedes E-Class 4MATIC and the Jeep Grand Cherokee which launched in the
first quarter of 2005.

    Tooling, Engineering and Other

    Tooling, engineering and other sales increased 39% or $263 million to
$938 million for the six months ended June 30, 2005 compared to $675 million
for the six months ended June 30, 2004. The increase was primarily
attributable to tooling and engineering revenue related to programs which
launched in 2005 or for upcoming program launches and an increase in reported
U.S. dollar sales due to the strengthening of the Canadian dollar, euro, and
British pound, each against the U.S. dollar. Tooling and engineering revenue
recorded in the first six months of 2005 relates to a number of programs,
including:

    -   the Ford Fusion, Mercury Milan and Lincoln Zephyr launching in 2005;
    -   the next generation Mini Cooper launching subsequent to the second
        quarter of 2005;
    -   the Mercedes M-Class launched in 2005;
    -   the Hummer H3 launched in 2005; and
    -   the Jeep Grand Cherokee launched in 2005.

    EBIT

    EBIT decreased 13% or $89 million to $580 million for the six months
ended June 30, 2005 compared to $669 million for the six months ended June 30,
2004. On a comparable basis, our EBIT was negatively impacted by:

    -   reduced volumes on certain high content GM and Ford programs;
    -   incremental price concessions;
    -   increased commodity prices;
    -   costs incurred at new facilities in preparation for upcoming launches
        or for programs that have not fully ramped up production;
    -   increased depreciation and amortization as a result of the
        privatizations of Tesma, Decoma and Intier and the acquisition of the
        NVG business;
    -   restructuring costs and impairment charges related substantially to
        three European facilities;
    -   charges recorded related to our MG Rover assets and supplier
        obligations as a result of the MG Rover situation;
    -   costs to rationalize a facility in North America;
    -   operating inefficiencies at certain facilities; and
    -   the expensing of capitalized bank facility fees.

    Partially offsetting these decreases was the positive impact of:

    -   realization of a foreign currency gain on the repatriation of funds
        from Europe;
    -   a gain on the disposal of a non-core seat component facility;
    -   the one-time charge to compensation expense of $12 million recorded
        in the first quarter of 2004;
    -   programs that launched during or subsequent to the first half of
        2004;
    -   increased complete vehicle assembly sales;
    -   operational improvements at certain facilities; and
    -   charges recorded during the first quarter of 2004 with respect to the
        closure of facilities in Europe.

    FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
    -------------------------------------------------------------------------

    Cash Flow from Operations
                                                  For the three months
                                                     ended June 30,
                                                  --------------------
                                                     2005      2004    Change
    -------------------------------------------------------------------------

    Net income                                     $    225  $    188
    Items not involving current cash flows              176       214
    -------------------------------------------------------------------------
                                                   $    401  $    402  $  (1)
    Changes in non-cash operating assets and
     liabilities                                       (272)      (48)
    -------------------------------------------------------------------------
    Cash provided from operating activities        $    129  $    354  $(225)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flow from operations before changes in non-cash operating assets and
liabilities decreased $1 million to $401 million for the second quarter of
2005 compared to $402 million for the second quarter of 2004. The decrease in
cash flow from operations was due to a $38 million decrease in items not
involving current cash flows partially offset by a $37 million increase in net
income (as explained above).

    The decrease in items not involving current cash flows was due to:

    -   a $27 million decrease in minority interest primarily as a result of
        the privatizations of Tesma, Intier and Decoma;
    -   a $27 million decrease in other non-cash charges including:
    -   the $18 million foreign currency gain on the repatriation of funds
        from Europe; and
    -   the $16 million gain on disposal of a non-core seat component
        facility; partially offset by
    -   a $5 million non-cash impairment charge; and
    -   an $18 million decrease in future income taxes.

    These decreases were partially offset by a $33 million increase in
depreciation and amortization and a $1 million decrease in equity income.
    Cash invested in operating assets and liabilities amounted to
$272 million for the second quarter of 2005. The cash used for operating
assets and liabilities was primarily attributable to increases in accounts
receivable and prepaid expenses and other of $428 million and $5 million,
respectively. The increase in accounts receivable is primarily due to the
increase in tooling sales, which generally have extended payment terms
compared to production sales. Partially offsetting the cash invested in
accounts receivable and prepaid expenses and other was cash generated from an
increase in accounts payable and other accrued liabilities, taxes payable and
deferred revenues of $148 million, combined with a decrease in inventory of
$13 million.

    Capital and Investment Spending               For the three months
                                                     ended June 30,
                                                  --------------------
                                                     2005      2004    Change
    -------------------------------------------------------------------------

    Fixed assets                                   $   (205) $   (172)
    Other assets                                        (22)      (10)
    -------------------------------------------------------------------------
    Fixed assets and other additions               $   (227) $   (182)
    Purchase of subsidiaries                            (33)      (53)
    Proceeds from disposals                              43         4
    -------------------------------------------------------------------------
    Cash used in investing activities              $   (217) $   (231) $  14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the second quarter of 2005 we invested $205 million in fixed assets.
While investments were made to refurbish or replace assets consumed in the
normal course and for productivity improvements, most of the investment was
for component manufacturing, painting and assembly equipment and facilities
for programs launching in future periods. The major programs that will be
launching or that have not fully ramped up production for which we invested
capital were:

    -   the new Ford Explorer and F-Series Super Duty pickup trucks in
        Kentucky;
    -   GM's next generation full-size pickup and sport utilities platform;
    -   the Peugeot 207 in Metz, France; and
    -   the Ford Fusion, Mercury Milan and Lincoln Zephyr in Mexico.

    We invested $22 million in other assets in the second quarter of 2005
primarily representing fully reimbursable planning and engineering costs
relating to programs that will be launching subsequent to the second quarter
of 2005.
    Purchases of subsidiaries on the statement of cash flows includes the
$50 million cash portion of the Intier privatization. Specifically, on
April 3, 2005 we acquired the outstanding 15% equity interest in Intier that
we did not previously own. Total consideration paid for the outstanding Class
A Subordinate Voting Shares of Intier not owned by us was approximately
$225 million, which was satisfied by issuing 2.3 million Magna Class A
Subordinate Voting Shares and cash of $50 million. The cash portion of the
Intier privatization was partially offset by a $17 million cash adjustment
received with respect to the acquisition of the NVG business.
    During the second quarter of 2004, we completed two small acquisitions
for which the cash consideration totalled $53 million.
    Proceeds from disposals reflect $25 million received on the sale of a
non-core seat component facility and proceeds from normal course fixed and
other asset disposals.

    Financing                                     For the three months
                                                     ended June 30,
                                                  --------------------
                                                     2005      2004    Change
    -------------------------------------------------------------------------

    Issues of debt                                 $     23  $     35
    Repayments of debt                                  (18)      (62)
    Issues of Class A Subordinate Voting Shares           3        20
    Issues of shares by subsidiaries                      -         4
    Dividends paid to minority interests                  -        (5)
    Dividends                                           (42)      (37)
    -------------------------------------------------------------------------
    Cash used in financing activities              $    (34) $    (45) $  11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the second quarter of 2004, the repayments of debt relate
primarily to a $47 million government debt repayment by Magna Steyr in Europe.
    During the second quarter of 2005, we issued $3 million in Class A
Subordinate Voting Shares on the exercise of stock options compared to issuing
$20 million in Class A Subordinate Voting Shares on the exercise of stock
options during the second quarter of 2004. The issue of shares by our
subsidiaries in 2004 is comprised primarily of the issue of $4 million of
Intier Class A Subordinate Voting Shares to the Intier employee deferred
profit sharing program and on the exercise of stock options.
    Dividends paid during the second quarter of 2005 were $42 million. These
payments relate to dividends declared in respect of the three-month period
ended March 31, 2005. The increase in quarterly dividends paid in the second
quarter of 2005 compared to the second quarter of 2004 relates to the increase
in the number of Class A Subordinate Voting Shares outstanding, primarily as a
result of the privatizations. There were no dividends paid to minority
interests in the second quarter of 2005 as a result of the privatizations.

    Financing Resources

                                                             As at
                                                    As at   December
                                                   June 30,    31,
                                                     2005    2004(i)   Change
    -------------------------------------------------------------------------

    Liabilities
      Bank indebtedness                            $    151  $    136
      Long-term debt due within one year                123        84
      Long-term debt                                    669       984
      Minority interest                                   -       634
    -------------------------------------------------------------------------
                                                        943     1,838
    Shareholders' equity                              6,344     5,335
    -------------------------------------------------------------------------
    Total capitalization                           $  7,287  $  7,173  $ 114
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (i) As required by CICA 3860, restated to reclassify our 7.08%
        Subordinated Debentures and 6.5% Convertible Subordinated Debentures
        to long-term debt from shareholders' equity and minority interest,
        respectively.

    Total capitalization increased by $114 million in the six months ended
June 30, 2005 to $7.3 billion. The increase in capitalization is a result of a
$1.0 billion increase in shareholders' equity offset in part by a $895 million
decrease in liabilities. The increase in equity is a result of the Class A
Subordinate Voting Shares issued as part of the purchase price for the
acquisition of the remaining minority interest of Tesma, Intier and Decoma and
on the exercise of stock options and net income earned during the six months
ended June 30, 2005, partially offset by dividends paid and a decrease in the
currency translation adjustment.
    The Decoma plan of arrangement resulted in the amalgamation of Magna and
Decoma. As a result of this amalgamation, Decoma's three-year term credit
facility (see below) and Decoma's 6.5% Convertible Subordinated Debentures
maturing March 31, 2010 became our direct obligations.
    The decrease in liabilities is primarily due to the decrease in minority
interest as a result of the acquisitions of the remaining minority interest in
Tesma, Intier and Decoma and decreases in long-term debt as a result of the
repayment of the first series of our senior unsecured notes related to the
acquisition of NVG and the outstanding debt on Decoma's term debt facility as
discussed above.
    During the second quarter of 2005, our cash resources decreased by
$168 million to $1.3 billion as discussed above. In addition to our cash
resources, we had unused and available operating lines of credit of
$136 million and term lines of credit of $790 million. During the first
quarter of 2005, we repaid the outstanding borrowings of Cdn $197 million
under the former Decoma term credit facility and the facility was cancelled.
On March 31, 2005, we amended and extended our existing Cdn $500 million 364-
day revolving credit facility to increase the permitted borrowing under the
facility to $745 million.
    In addition to the above unused and available financing resources, we
sponsor a tooling finance program for tooling suppliers to finance tooling
under construction for use in our operations. The maximum facility amount is
Cdn $100 million. As at June 30, 2005, Cdn $7 million had been advanced to
tooling suppliers under this facility. This amount is included in accounts
payable on our consolidated balance sheet.

    Maximum Number of Shares Issuable

    The following table presents the maximum number of shares that would be
outstanding if all of the outstanding options and Subordinated Debentures
issued and outstanding at August 5, 2005 were exercised or converted:

    Class A Subordinate Voting and Class B Shares                109,129,049
    Subordinated Debentures(i)                                     1,096,582
    Stock options(ii)                                              4,758,415
    -------------------------------------------------------------------------
                                                                 114,984,046
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (i)  The above amounts include shares issuable if the holders of the 6.5%
         Convertible Subordinated Debentures exercise their conversion option
         but exclude Class A Subordinate Voting Shares issuable, only at our
         option, to settle interest and principal related to the 6.5%
         Convertible Subordinated Debentures. The number of Class A
         Subordinate Voting Shares issuable at our option is dependent on the
         trading price of Class A Subordinate Voting Shares at the time we
         elect to settle 6.5% Convertible Subordinated Debenture interest and
         principal with shares.

         The above amounts also exclude Class A Subordinate Voting Shares
         issuable, only at our option, to settle the 7.08% Subordinated
         Debentures on redemption or maturity. The number of shares issuable
         is dependent on the trading price of Class A Subordinate Voting
         Shares at redemption or maturity of the 7.08% Subordinated
         Debentures.

    (ii) Options to purchase Class A Subordinate Voting Shares are
         exercisable by the holder in accordance with the vesting provisions
         and upon payment of the exercise price as may be determined from
         time to time and pursuant to our 1987 Incentive Stock Option Plan,
         as amended, Tesma's amended and restated Stock Option Plan, Decoma's
         Option Plan and Intier's 2001 Incentive Stock Option Plan.

    Contractual Obligations and Off Balance Sheet Financing

    There have been no material changes with respect to the contractual
obligations requiring annual payments during the second quarter of 2005 that
are outside the ordinary course of our business. Refer to our MD&A included in
our 2004 Annual Report.
    Long-term receivables in other assets are reflected net of outstanding
borrowings from a customer's finance subsidiary of $60 million since we have
the legal right of set-off of our long-term receivable against such borrowings
and we are settling the related amounts simultaneously.

    2005 OUTLOOK
    -------------------------------------------------------------------------

    All amounts below exclude the impact of any potential future
acquisitions.
    Our results are expected to continue to be impacted by the negative
conditions in the automotive industry, including weak automotive production,
OEM price concessions, higher commodity costs and general economic
uncertainty. In addition, our 2005 results are expected to be negatively
impacted by certain unusual items, including rationalization and other charges
associated with certain of our operations, including operations that supplied
MG Rover, and restructuring charges arising from our recently completed
privatizations.
    We expect 2005 average dollar content per vehicle to be between $710 and
$730 in North America and between $305 and $325 in Europe. We expect 2005
European complete vehicle assembly sales to be between $4.0 billion and
$4.2 billion. Further, we have assumed 2005 vehicle production volumes will be
approximately 15.7 million units in North America and approximately
16.1 million units in Europe. Based on expected average dollar content per
vehicle in North America and Europe, current exchange rates, the above volume
assumptions and anticipated complete vehicle assembly, tooling and other
automotive sales, we expect our sales for 2005 to be between $21.6 billion and
$22.6 billion, compared to 2004 sales of $20.7 billion. In addition, we expect
that 2005 spending for fixed assets will be between $850 million and
$900 million.
    In 2005, excluding the impact of the unusual items noted above, we
anticipate lower diluted earnings per share than 2004.

    COMMITMENTS AND CONTINGENCIES
    -------------------------------------------------------------------------
    From time to time, we may be contingently liable for litigation and other
claims. Refer to note 28 of our 2004 audited consolidated financial
statements, which describe these claims.

    FORWARD-LOOKING STATEMENTS
    -------------------------------------------------------------------------
    The previous discussion contains statements that, to the extent that they
are not recitations of historical fact, constitute "forward-looking
statements" within the meaning of applicable securities legislation. Forward-
looking statements may include financial and other projections, as well as
statements regarding our future plans, objectives or economic performance, or
the assumptions underlying any of the foregoing. We use words such as "may",
"would", "could", "will", "likely", "expect", "anticipate", "believe",
"intend", "plan", "forecast", "project", "estimate" and similar expressions to
identify forward-looking statements. Any such forward-looking statements are
based on assumptions and analyses made by us in light of our experience and
our perception of historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate in the
circumstances. However, whether actual results and developments will conform
with our expectations and predictions is subject to a number of risks,
assumptions and uncertainties. These risks, assumptions and uncertainties
include, but are not limited to: changes in consumer demand due to global
economic and political conditions (including acts of terrorism); decreases in
automotive production volumes; shifts in market share away from vehicles or
vehicle platforms on which we have high content and margins; our reliance on a
small number of automobile manufacturers, some of which have been experiencing
declining overall production volumes; our success in diversifying our customer
base; the impact of the declining competitiveness and deteriorating financial
condition of some of our customers and suppliers; a decline in outsourcing by
automobile manufacturers; pressure from our customers to reduce our prices and
absorb certain fixed costs; the competitiveness of the automotive supply
industry; our ability to reduce our exposure to, or recover, increases in
prices for commodities such as steel and resins; increased crude oil and
energy prices; product warranty and recall costs, as well as product liability
risks; fluctuations in relative currency values; risks associated with doing
business in foreign countries; the success of our proposed rationalization of
production and/or the streamlining of administrative functions due to the
privatization of our former publicly traded subsidiaries; rapid technological
and regulatory changes; the threat of labour disruptions affecting us, our
customers or our suppliers; program cancellations and delays in launching new
programs; delays in constructing new facilities; changes in governmental
regulations; the impact of environmental law and regulations; the impact of
legal proceedings to which we are or may become a party; our relationship with
our controlling shareholder; and other factors set out in our Annual
Information Form filed with securities commissions in Canada and our annual
report on Form 40-F filed with the United States Securities and Exchange
Commission, and subsequent filings. In evaluating forward-looking statements,
readers should specifically consider the various factors which could cause
actual events or results to differ materially from those indicated by such
forward-looking statements. Unless otherwise required by applicable securities
laws, we do not intend, nor do we undertake any obligation, to update or
revise any forward-looking statements to reflect subsequent information,
events, results or circumstances or otherwise.



    MAGNA INTERNATIONAL INC.
    CONSOLIDATED STATEMENTS OF INCOME
    (Unaudited)
    (United States dollars in millions, except per share figures)

                                    Three months ended    Six months ended
                                         June 30,              June 30,
                                   -------------------- ---------------------
                              Note   2005       2004       2005       2004
    -------------------------------------------------------------------------
                                             (restated             (restated
                                               note 2)               note 2)

    Sales                          $  5,858   $  5,113   $ 11,576   $ 10,216
    -------------------------------------------------------------------------

    Cost of goods sold                5,065      4,337     10,058      8,690
    Depreciation and
     amortization                       173        140        341        275
    Selling, general and
     administrative             7       292        298        597        591
    Interest expense, net                 2         10          3         17
    Equity income                        (2)        (3)        (5)        (9)
    Impairment charges                    5          -          5          -
    -------------------------------------------------------------------------
    Income from operations
     before income taxes
     and minority interest              323        331        577        652
    Income taxes                         98        116        169        235
    Minority interest           3         -         27         11         50
    -------------------------------------------------------------------------
    Net income                     $    225   $    188   $    397   $    367
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per Class A
     Subordinate Voting or
     Class B Share:
      Basic                        $   2.10   $   1.94   $   3.78   $   3.79
      Diluted                      $   2.06   $   1.93   $   3.73   $   3.77
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash dividends paid per
     Class A Subordinate
     Voting or Class B Share       $   0.38   $   0.38   $   0.76   $   0.72
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average number of Class A
     Subordinate Voting and
     Class B Shares outstanding
     during the period
     (in millions):
      Basic                           107.2       96.8      105.0       96.6
      Diluted                         109.9       97.4      106.9       97.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
    (Unaudited)
    (United States dollars in millions)

                                    Three months ended    Six months ended
                                         June 30,              June 30,
                                   -------------------- ---------------------
                              Note   2005       2004       2005       2004
    -------------------------------------------------------------------------

    Retained earnings,
     beginning of period           $  3,068   $  2,550  $   2,935   $  2,384
    Net income                          225        188        397        367
    Dividends on Class A
     Subordinate Voting
     and Class B Shares                 (42)       (37)       (83)       (70)
    Adjustment for change in
     accounting policy related
     to financial instruments   2         -          -          2         20
    -------------------------------------------------------------------------
    Retained earnings,
     end of period                 $  3,251   $  2,701   $  3,251   $  2,701
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                           See accompanying notes



    MAGNA INTERNATIONAL INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)
    (United States dollars in millions)

                                    Three months ended    Six months ended
                                         June 30,              June 30,
                                   -------------------- ---------------------
                              Note   2005       2004       2005       2004
    -------------------------------------------------------------------------
                                             (restated             (restated
                                               note 2)               note 2)
    Cash provided from
     (used for):

    OPERATING ACTIVITIES
    Net income                     $    225   $    188   $    397   $    367
    Items not involving
     current cash flows                 176        214        366        428
    -------------------------------------------------------------------------
                                        401        402        763        795
    Changes in non-cash
     operating assets
     and liabilities                   (272)       (48)      (110)       152
    -------------------------------------------------------------------------
                                        129        354        653        947
    -------------------------------------------------------------------------

    INVESTMENT ACTIVITIES
    Fixed asset additions              (205)      (172)      (329)      (320)
    Purchase of subsidiaries    3       (33)       (53)      (169)       (64)
    Increase in other assets            (22)       (10)       (69)       (33)
    Proceeds from disposition            43          4         58         22
    -------------------------------------------------------------------------
                                       (217)      (231)      (509)      (395)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Issues of debt                       23         35         62         29
    Repayments of debt          4       (18)       (62)      (278)       (81)
    Issues of Class A
     Subordinate Voting Shares            3         20         13         26
    Issues of shares by
     subsidiaries                         -          4          1         10
    Dividends paid to minority
     interests                            -         (5)        (1)        (9)
    Dividends                           (42)       (37)       (83)       (70)
    -------------------------------------------------------------------------
                                        (34)       (45)      (286)       (95)
    -------------------------------------------------------------------------
    Effect of exchange rate
     changes on cash and
     cash equivalents                   (46)         5        (83)       (27)
    -------------------------------------------------------------------------
    Net increase (decrease)
     in cash and cash
     equivalents during the
     period                            (168)        83       (225)       430
    Cash and cash equivalents,
     beginning of period              1,462      1,875      1,519      1,528
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                 $  1,294   $  1,958   $  1,294   $  1,958
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                           See accompanying notes



    MAGNA INTERNATIONAL INC.
    CONSOLIDATED BALANCE SHEETS
    (Unaudited)
    (United States dollars in millions)
                                                         June 30,   December
                                                    Note   2005     31, 2004
    -------------------------------------------------------------------------
                                                                   (restated
                                                                     note 2)
    ASSETS
    Current assets
    Cash and cash equivalents                            $  1,294   $  1,519
    Accounts receivable                                     3,583      3,276
    Inventories                                             1,290      1,376
    Prepaid expenses and other                                112        110
    -------------------------------------------------------------------------
                                                            6,279      6,281
    -------------------------------------------------------------------------
    Investments                                               136        139
    Fixed assets, net                                       4,049      3,967
    Goodwill                                          3       913        747
    Future tax assets                                         195        195
    Other assets                                              310        282
    -------------------------------------------------------------------------
                                                         $ 11,882   $ 11,611
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities
    Bank indebtedness                                    $    151   $    136
    Accounts payable                                        3,070      3,006
    Accrued salaries and wages                                436        449
    Other accrued liabilities                                 417        350
    Income taxes payable                                        6         35
    Long-term debt due within one year                        123         84
    -------------------------------------------------------------------------
                                                            4,203      4,060
    -------------------------------------------------------------------------
    Deferred revenue                                           65         70
    Long-term debt                                    4       669        984
    Other long-term liabilities                               234        240
    Future tax liabilities                                    367        288
    Minority interest                                 3         -        634
    -------------------------------------------------------------------------
                                                            5,538      6,276
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock                                     6
      Class A Subordinate Voting Shares (issued:
       107,981,310; December 31, 2004 - 95,850,377)         2,472      1,610
      Class B Shares (convertible into Class A
       Subordinate Voting Shares) (issued: 1,093,983)           -          -
    Other paid-in capital                                       3          -
    Contributed surplus                               7        61         16
    Retained earnings                                       3,251      2,937
    Currency translation adjustment                           557        772
    -------------------------------------------------------------------------
                                                            6,344      5,335
    -------------------------------------------------------------------------
                                                         $ 11,882   $ 11,611
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                           See accompanying notes



    MAGNA INTERNATIONAL INC.
    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited)
    (All amounts in U.S. dollars and all tabular amounts in millions unless
     otherwise noted)
    -------------------------------------------------------------------------

    1.  BASIS OF PRESENTATION

        The unaudited interim consolidated financial statements of Magna
        International Inc. and its subsidiaries (collectively "Magna" or the
        "Company") have been prepared in U.S. dollars following Canadian
        generally accepted accounting principles, as well as following the
        accounting policies as set out in the 2004 annual consolidated
        financial statements, except for the accounting change set out in
        note 2.

        The unaudited interim consolidated financial statements do not
        conform in all respects to the requirements of generally accepted
        accounting principles for annual financial statements. Accordingly,
        these unaudited interim consolidated financial statements should be
        read in conjunction with the 2004 annual consolidated financial
        statements.

        In the opinion of management, the unaudited interim consolidated
        financial statements reflect all adjustments, which consist only of
        normal and recurring adjustments, necessary to present fairly the
        financial position at June 30, 2005 and the results of operations and
        cash flows for the three month and six-month periods ended June 30,
        2005 and 2004.

    2.  ACCOUNTING CHANGE

        Financial Instruments - Disclosure and Presentation

        In 2003, the Canadian Institute of Chartered Accountants ("CICA")
        amended Handbook Section 3860 "Financial Instruments - Disclosure and
        Presentation" ("CICA 3860") to require certain obligations that may
        be settled with an entity's own equity instruments to be reflected as
        a liability. The amendments require the Company to present Preferred
        Securities and Subordinated Debentures as liabilities, with the
        exception of the equity value ascribed to the holders' option to
        convert the 6.5% Convertible Subordinated Debentures into Class A
        Subordinate Voting Shares, and to present the related liability
        carrying costs as a charge to net income. The Company adopted these
        new recommendations effective January 1, 2005 on a retroactive basis.

        The impact of this accounting policy change on the consolidated
        balance sheet as at December 31, 2004 was as follows:

        Increase in other assets                                    $      2
        ---------------------------------------------------------------------

        Decrease in income taxes payable                            $      1
        Increase in long-term debt                                       216
        Decrease in debentures' interest obligation                       38
        Decrease in minority interest                                     68
        ---------------------------------------------------------------------

        Decrease in other paid-in-capital                           $     75
        Increase in retained earnings                                      2
        Decrease in currency translation adjustment                       34
        ---------------------------------------------------------------------

        The impact of this accounting policy change on the consolidated
        statements of income and retained earnings was as follows:

                                                          Three       Six
                                                         months     months
                                                          ended      ended
                                                         June 30,   June 30,
                                                           2004       2004
        ---------------------------------------------------------------------

        Increase in interest expense                     $     11   $     19
        Decrease in income taxes                               (5)        (7)
        Decrease in minority interest                          (1)        (2)
        ---------------------------------------------------------------------
        Decrease in net income                                 (5)       (10)
        Decrease in financing charges on Preferred
         Securities and other paid-in-capital                   5         10
        ---------------------------------------------------------------------
        Change in net income available to Class A
         Subordinate Voting and Class B shareholders     $      -   $      -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        There was no impact of this accounting policy change on reported
        basic and diluted earnings per Class A Subordinate Voting or Class B
        Share for the three or six month periods ended June 30, 2004 and
        2005.

    3.  ACQUISITIONS

        (a) Tesma

            On February 1, 2005, the shareholders of Tesma International Inc.
            ("Tesma") approved a plan of arrangement that became effective on
            February 6, 2005 under which Magna acquired the outstanding 56%
            equity interest in Tesma that it did not previously own. Total
            consideration for the outstanding Class A Subordinate Voting
            Shares of Tesma not owned by the Company was approximately
            $613 million, which was satisfied by issuing 6.7 million Magna
            Class A Subordinate Voting Shares (note 6) and cash of
            approximately $103 million. In addition, Magna assumed
            responsibility for the existing stock options of Tesma, resulting
            in an increase in the purchase price of approximately
            $17 million, representing the approximate fair value of the stock
            options assumed. This fair value has been credited to contributed
            surplus (note 7). The excess of the purchase price over the
            Company's incremental interest in the book value of the assets
            acquired and liabilities assumed was $270 million.

        (b) Decoma

            On February 28, 2005, the shareholders of Decoma International
            Inc. ("Decoma") approved a plan of arrangement that became
            effective on March 6, 2005 under which Magna acquired the
            outstanding 27% equity interest in Decoma that it did not
            previously own. Total consideration for the outstanding Class A
            Subordinate Voting Shares of Decoma not owned by the Company was
            approximately $239 million, which was satisfied by issuing
            2.9 million Magna Class A Subordinate Voting Shares (note 6) and
            cash of approximately $31 million. In addition, Magna assumed
            responsibility for the existing stock options of Decoma,
            resulting in an increase in the purchase price of approximately
            $2 million, representing the approximate fair value of the stock
            options assumed. This fair value has been credited to contributed
            surplus (note 7). The excess of the purchase price over the
            Company's incremental interest in the book value of the assets
            acquired and liabilities assumed was $78 million.

            The Decoma plan of arrangement resulted in the amalgamation of
            Magna and Decoma. As a result of this amalgamation, Decoma's
            three-year term credit facility maturing September 30, 2007 and
            Decoma's 6.5% Convertible Subordinated Debentures maturing March
            31, 2010 became direct obligations of the Company. In March 2005,
            the Company repaid outstanding borrowings of Cdn $197 million
            under the former Decoma term credit facility and the facility was
            cancelled (note 4).

        (c) Intier

            On March 30, 2005 the shareholders of Intier Automotive Inc.
            ("Intier") approved a plan of arrangement that became effective
            on April 3, 2005 under which Magna acquired the outstanding 15%
            equity interest in Intier that it did not previously own. Total
            consideration for the outstanding Class A Subordinate Voting
            Shares of Intier not owned by the Company was approximately
            $202 million, which was satisfied by issuing 2.3 million Magna
            Class A Subordinate Voting Shares (note 6) and cash of
            approximately $50 million. In addition, Magna assumed
            responsibility for the existing stock options of Intier,
            resulting in an increase in the purchase price of approximately
            $23 million, representing the approximate fair value of the stock
            options assumed. This fair value has been credited to contributed
            surplus (note 7). The excess of the purchase price over the
            Company's incremental interest in the book value of the assets
            acquired and liabilities assumed was $87 million.

            The purchase price allocations for these acquisitions and certain
            2004 acquisitions are preliminary and adjustments to the purchase
            price and related preliminary allocations may occur as a result
            of obtaining more information regarding asset valuations,
            liabilities assumed, purchase price adjustments pursuant to the
            purchase agreements, and revisions of preliminary estimates of
            fair value made at the date of purchase. On a preliminary basis,
            an allocation of the excess purchase price over the Company's
            incremental interest in the book value of the assets acquired and
            liabilities assumed has been made to fixed assets for each of the
            Tesma, Decoma and Intier acquisitions.

    4.  LONG-TERM DEBT

        During the three months ended March 31, 2005, the Company repaid the
        outstanding borrowings of Cdn $197 million under the former Decoma
        term credit facility and the facility was cancelled. On March 31,
        2005, Magna amended and extended its existing Cdn $500 million 364-
        day revolving credit facility to increase the permitted borrowing
        under the facility to $745 million.

    5.  EMPLOYEE FUTURE BENEFIT PLANS

        The Company recorded employee future benefit expenses as follows:

                                   Three months ended     Six months ended
                                         June 30,              June 30,
                                  --------------------- ---------------------
                                     2005       2004       2005       2004
        ---------------------------------------------------------------------

        Defined benefit pension
         plans and other           $      5   $      5   $      7   $     10
        Termination and long
         service arrangements             3          4          8          7
        Retirement medical
         benefits plan                    3          2          5          4
        ---------------------------------------------------------------------
                                   $     11   $     11   $     20   $     21
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    6.  CAPITAL STOCK

        (a) Changes in the Class A Subordinate Voting Shares for the three
            and six months ended June 30, 2005 are shown in the following
            table (numbers of shares in the following table are expressed in
            whole numbers):

                                                        Subordinate Voting
                                                     ------------------------
                                                       Number of     Stated
                                                         shares      value
        ---------------------------------------------------------------------

        Issued and outstanding at December 31, 2004    95,850,377   $  1,610
        Issued on privatization of Tesma(i)             6,687,709        510
        Issued on privatization of Decoma(i)            2,854,400        208
        Issued for cash under the Incentive
         Stock Option Plan                                170,106         13
        Issued under the Dividend Reinvestment Plan         2,438          -
        Exchange of subsidiary restricted stock or
         Magna restricted stock(i)                              -        (19)
        ---------------------------------------------------------------------
        Issued and outstanding at March 31, 2005      105,565,030      2,322
        Issued on privatization of Intier               2,332,748        152
        Issued for cash under the Incentive
         Stock Option Plan                                 80,486          6
        Issued under the Dividend Reinvestment Plan         3,046          -
        Exchange of subsidiary restricted stock or
         Magna restricted stock(i)                              -         (8)
        ---------------------------------------------------------------------
        Issued and outstanding at June 30, 2005       107,981,310   $  2,472
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (i)   During 2003 and 2004, a subsidiary of the Company purchased
              275,462 Tesma Class A Subordinate Voting Shares, 1,138,941
              Decoma Class A Subordinate Voting Shares and 525,665 Intier
              Class A subordinate Voting Shares for cash consideration of
              $6 million, $9 million and $8 million, respectively, which were
              then awarded on a restricted basis to certain executives. Also
              during 2004, Decoma purchased 451,685 Decoma Class A
              Subordinate Voting Shares for cash consideration of $4 million,
              which were then awarded on a restricted basis to an executive
              of Decoma.

              The shares issued on privatization of Tesma, Decoma and Intier
              include the shares issued by Magna in exchange for these
              shares, and since this stock has not been released to the
              executives, it has been reflected as a reduction in the stated
              value of Magna's Class A Subordinate Voting Shares. Previously,
              these amounts had been reflected in minority interest (note 7).

        (b) The following table presents the maximum number of shares that
            would be outstanding if all dilutive instruments outstanding at
            August 5, 2005 were exercised:

        Class A Subordinate Voting and Class B Shares
         outstanding at August 5, 2005                           109,129,049
        Subordinated Debentures(i)                                 1,096,582
        Stock options(ii)                                          4,758,415
        ---------------------------------------------------------------------
                                                                 114,984,046
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (i)   The above amounts include shares issuable if the holders of the
              6.5% Convertible Subordinated Debentures exercise their
              conversion option but exclude Class A Subordinate Voting Shares
              issuable, only at the Company's option, to settle interest and
              principal related to the 6.5% Convertible Subordinated
              Debentures. The number of Class A Subordinate Voting Shares
              issuable at the Company's option is dependent on the trading
              price of the Class A Subordinate Voting Shares at the time the
              Company elects to settle the 6.5% Convertible Subordinated
              Debenture interest and principal with shares.

              The above amounts also exclude Class A Subordinate Voting
              Shares issuable, only at the Company's option, to settle the
              7.08% Subordinated Debentures on redemption or maturity. The
              number of shares issuable is dependent on the trading price of
              Class A Subordinate Voting Shares at redemption or maturity of
              the 7.08% Subordinated Debentures.

        (ii)  Options to purchase Class A Subordinate Voting Shares are
              exercisable by the holder in accordance with the vesting
              provisions and upon payment of the exercise price as may be
              determined from time to time and pursuant to our 1987 Incentive
              Stock Option Plan, as amended, Tesma's amended and restated
              Stock Option Plan, Decoma's Option Plan and Intier's 2001
              Incentive Stock Option Plan.

    7.  STOCK BASED COMPENSATION

        (a) The following is a continuity schedule of options outstanding
            (number of options in the table below are expressed in whole
            numbers):

                                                          2005
                                           ----------------------------------
                                            Options outstanding
                                           ---------------------
                                                       Exercise      Options
                                               Options  price(i) exercisable
                                                   No.     Cdn$          No.
        ---------------------------------------------------------------------

        Beginning of year                    2,614,376    85.74    2,042,876
        Assumed on privatization             1,053,353    71.31      864,688
        Granted                                 35,000    85.75            -
        Exercised                             (170,106)   61.09     (170,106)
        Vested                                       -        -        9,291
        Cancelled                                    -        -            -
        ---------------------------------------------------------------------
        March 31                             3,532,623    82.62    2,746,749
        Assumed on privatization             1,377,067    54.11      973,668
        Exercised                              (80,486)   53.67      (80,486)
        Vested                                       -        -       11,775
        Cancelled                              (17,033)   84.60            -
        ---------------------------------------------------------------------
        June 30                              4,812,171    74.94    3,651,706
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                                          2004
                                           ----------------------------------
                                            Options outstanding
                                           ---------------------
                                                       Exercise      Options
                                               Options  price(i) exercisable
                                                   No.     Cdn$          No.
        ---------------------------------------------------------------------

        Beginning of year                    3,046,450    82.31    1,991,950
        Assumed on privatization                     -        -            -
        Granted                                 15,000   105.19            -
        Exercised                             (117,600)   62.63     (117,600)
        Vested                                       -        -       43,625
        Cancelled                               (3,000)   97.47            -
        ---------------------------------------------------------------------
        March 31                             2,940,850    83.20    1,917,975
        Assumed on privatization
        Exercised                             (414,474)   71.43     (414,474)
        Vested                                       -        -            -
        Cancelled                                    -        -            -
        ---------------------------------------------------------------------
        June 30                              2,526,376    85.13    1,503,501
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (i)   The exercise price noted above, represents the weighted average
              exercise price in Canadian dollars.

        (b) Effective January 1, 2003, the Company adopted the fair value
            recognition provisions of CICA 3870 for all options granted after
            January 1, 2003. The fair value of stock options is estimated at
            the date of grant using the Black Scholes option pricing model.

            The weighted average assumptions used in measuring the fair value
            of stock options, the weighted average fair value of options
            granted, modified or assumed on privatization and the
            compensation expense recorded in selling, general and
            administrative expenses are as follows:

                                   Three months ended     Six months ended
                                         June 30,              June 30,
                                  --------------------- ---------------------
                                     2005       2004       2005       2004
        ---------------------------------------------------------------------

        Risk free interest rate       3.32%          -      3.24%      3.29%
        Expected dividend yield       2.40%          -      2.18%      1.63%
        Expected volatility             23%          -        23%        32%
        Expected time until
         exercise                   2 years          -    2 years    4 years
        ---------------------------------------------------------------------
        Weighted average fair
         value of options
         granted or modified
         in period (Cdn$)          $  19.33   $      -   $  18.48   $  29.64
        ---------------------------------------------------------------------
        Compensation expense
         recorded in selling,
         general and administrative
         expenses                  $      6   $      -   $      9   $     13
        ---------------------------------------------------------------------

            In connection with the privatization of Tesma, Decoma and Intier,
            the terms of outstanding Tesma, Decoma and Intier stock options
            were modified through either the exchange of Tesma, Decoma and
            Intier options for Magna replacement options or through
            adjustment provisions to existing options such that holders of
            Tesma, Decoma and Intier continuing options would be entitled to
            receive Magna Class A Subordinate Voting shares in lieu of Tesma,
            Decoma or Intier Class A Subordinate Voting Shares when
            exercised. Where the original options were granted prior to
            January 1, 2003 and were unvested at the date of privatization,
            the above modifications create incremental compensation expense
            over the remaining vesting period.

            During the three month period ended March 31, 2004, option
            agreements with certain former employees of the Company were
            modified, which resulted in a one time charge to compensation
            expense of $12 million. This charge represents the remaining
            measured but unrecognized compensation expense related to the
            options granted during 2003, and the fair value at the date of
            modification of all of the options that were granted prior to
            January 1, 2003.

            If the fair value recognition provisions would have been adopted
            effective January 1, 2002 for all stock options granted after
            January 1, 2002, the Company's pro forma net income and pro forma
            basic and diluted earnings per Class A Subordinate Voting or
            Class B Share for the three and six month periods ended June 30,
            2005 and 2004 would have been as follows:


                                   Three months ended     Six months ended
                                         June 30,              June 30,
                                  --------------------- ---------------------
                                     2005       2004       2005       2004
        ---------------------------------------------------------------------

        Pro forma net income       $    224   $    187   $    395   $    369

        Pro forma earnings per
         Class A Subordinate
         Voting or Class B Share
          Basic                    $   2.09   $   1.93   $   3.77   $   3.82
          Diluted                  $   2.05   $   1.92   $   3.72   $   3.79
        ---------------------------------------------------------------------

        (c) At June 30, 2005, unamortized compensation expense related to the
            restricted stock arrangements was $30 million, and has been
            presented as a reduction of shareholders' equity.

        (d) Contributed surplus consists of accumulated stock option
            compensation expense less the fair value of options at the grant
            date that have been exercised and reclassified to share capital,
            the fair value of options assumed through the privatization of
            Tesma, Decoma and Intier, and the accumulated restricted stock
            compensation expense less the portion of restricted stock that
            has been released to the executives and reclassified to share
            capital. The following is a continuity schedule of contributed
            surplus:

                                                           2005       2004
        ---------------------------------------------------------------------

        Balance, beginning of year                       $     16   $      3
        Impact of privatization transactions (note 6)          20          -
        Stock-based compensation expense                        2         12
        Exercise of options                                    (5)        (1)
        ---------------------------------------------------------------------
        Balance, March 31,                                     33         14
        Impact of privatization transaction (note 6)           25          -
        Stock-based compensation expense                        5          -
        Exercise of options                                    (2)         -
        ---------------------------------------------------------------------
        Balance, June 30,                                $     61   $     14
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  SEGMENTED INFORMATION

                            Three months ended         Three months ended
                               June 30, 2005              June 30, 2004
                        -------------------------- --------------------------
                                           Fixed                      Fixed
                         Total            assets,   Total            assets,
                         sales   EBIT(i)    net     sales   EBIT(i)    net
        ---------------------------------------------------------------------

        Decoma          $   799  $    19  $   661  $   689  $    44  $   689
        Intier            1,518       86      533    1,410       67      543
        Tesma               369       22      407      341       35      347
        Magna Steyr       1,771       79      725    1,471       63      524
        Other Automotive
         Operations       1,458      101    1,380    1,247      125    1,188
        Corporate and
         other              (57)      18      343      (45)       7       75
        ---------------------------------------------------------------------
        Total reportable
         segments       $ 5,858  $   325    4,049  $ 5,113  $   341    3,366
        Current assets                      6,279                      6,077
        Investments,
         goodwill and
         other assets                       1,554                      1,147
        ---------------------------------------------------------------------
        Consolidated
         Total Assets                     $11,882                    $10,590
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                             Six months ended           Six months ended
                               June 30, 2005              June 30, 2004
                        -------------------------- --------------------------
                                           Fixed                      Fixed
                         Total            assets,   Total            assets,
                         sales   EBIT(i)    net     sales   EBIT(i)    net
        ---------------------------------------------------------------------

        Decoma          $ 1,568  $    29  $   661  $ 1,409  $    93  $   689
        Intier            2,986      133      533    2,803      119      543
        Tesma               746       46      407      703       74      347
        Magna Steyr       3,636      141      725    2,846      100      524
        Other Automotive
         Operations       2,748      178    1,380    2,536      250    1,188
        Corporate and
         other             (108)      53      343      (81)      33       75
        ---------------------------------------------------------------------
        Total reportable
         segments       $11,576  $   580    4,049  $10,216  $   669    3,366
        Current assets                      6,279                      6,077
        Investments,
         goodwill and
         other assets                       1,554                      1,147
        ---------------------------------------------------------------------
        Consolidated
         Total Assets                     $11,882                    $10,590
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (i)   EBIT represents operating income before interest income or
              expense.

    9.  COMPARATIVE FIGURES

        Certain of the comparative figures have been reclassified to conform
        to the current period's method of presentation.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
