Financial overview

Factors
note 1) : Overall Sales
-During 2006, the Company recorded sales of $24.2 billion, an increase of 6% over 2005. This higher sales level was achieved as a result of growth in its North American and European dollar content per vehicle of 6% and 14%, respectively, and increases in Rest of World production sales, complete vehicle assembly sales, and tooling, engineering and other sales.
-These increases were offset in part by reductions in North American and European vehicle production levels of 2% and 3%, respectively. More importantly, during 2006 the Company's largest OEM customers in North America significantly reduced vehicle production levels, particularly on certain light truck programs. While overall North American vehicle production volumes declined 2% in 2006 compared to 2005, General Motors ("GM"), Ford and Chrysler light truck production declined 6%, 18% and 10%, respectively. These declines were even more pronounced during the second half of 2006, with production declines on GM, Ford and Chrysler light truck programs of 14%, 28% and 13%, respectively, a period when overall North American vehicle production volumes declined 7%.
-The production declines reflect a number of factors that continue to impact the Company's largest customers in North America, including declining market share, high inventory levels on certain vehicles, and a shift in consumer preferences away from light trucks. The lower production levels at its largest OEM customers, particularly for certain light trucks, negatively impacted the Company's sales and earnings, as its content on a number of these programs is higher than its consolidated average dollar content per vehicle in North America.

note 2) : Operating Income
-Operating income for 2006 decreased 16% or $150 million to $792 million from $942 million for 2005. Excluding the unusual items recorded in 2006 and 2005 operating income for 2006 decreased $147 million or 14%. The decrease in operating income excluding unusual items was primarily due to a substantial underperformance at most of its interior systems facilities, operational inefficiencies and other costs at certain facilities, costs associated with the cancellation of the Ford Freestar and Mercury Monterey minivan program, an accrual of the minimum required payment under its Employee Equity and Profit Participation Program ("EEPPP"), lower sales on certain higher content programs in North America, as well as incremental customer price concessions.
-These factors were partially offset by additional margins earned on the launch of new programs during or subsequent to 2005, lower warranty costs, increased margins earned on higher volumes for certain assembly programs, the acquisition of CTS Fahrzeug-Dachsysteme GmbH, Beitingheim-Bissingen ("CTS"), and the closure, during or subsequent to 2005, of certain underperforming divisions that were incurring losses.

note 3) : External Production North America
-External production sales in North America increased 3% or $384million to $11.9 billion for 2006 compared to $11.5 billion for 2005. This increase in production sales reflects a 6% increase in the Company's North American average dollar content per vehicle partially offset by a 2% decrease in North American vehicle production volumes. More importantly, production volumes at its largest North American customers continued to deteriorate. While North American vehicle production volumes declined 2% during 2006 compared to 2005, production volumes at GM, Ford and Chrysler declined 4%, 9% and 8%, respectively. These declines were even more pronounced during the second half of 2006, with production declines at GM, Ford and Chrysler of 11%, 17% and 11%, respectively, a period when North American vehicle production volumes declined 7%.
-The Company's average dollar content per vehicle grew by 6% or $44 to $775 for 2006 compared to $731 for 2005, primarily as a result of:
a) the launch of new programs during or subsequent to 2005, including:
• GM's next generation full-size pickups and SUVs;
• the Ford Fusion, Mercury Milan and Lincoln Zephyr / MKZ;
• the Chevrolet HHR;
• the Dodge Caliber;
• the Chevrolet Impala;
• the Ford Explorer / Sport Trac and Mercury Mountaineer; and
• the Buick Lucerne;
b) an increase in reported U.S. dollar sales due to the strengthening of the Canadian dollar against the U.S. dollar;
c)increased production and/or content on certain programs, including:
• the Mercedes M-Class; and
• the BMW Z4; and
d) the acquisition of CTS in February 2006.
-These factors were partially offset by:
a) the impact of lower production and/or content on certain programs, including:
• the Dodge Caravan, Grand Caravan and Chrysler Town & Country;
• the Ford Escape, Mercury Mariner and Mazda Tribute;
• the Chevrolet Envoy, Buick Rainier and GMC Trailblazer;
• the Cadillac STS;
• the Ford Freestar and Mercury Monterey;
• the Jeep Grand Cherokee;
• the Chrysler Pacifica;
• the Ford F-Series SuperDuty; and
• the Cadillac CTS;
b) programs that ended production during or subsequent to 2005; and
c) incremental customer price concessions.

note 4) : External Production Europe
-External production sales in Europe increased 11% or $566 million to $5.6 billion for 2006 compared to $5.1 billion for 2005. This increase in production sales reflects a 14% increase in the Company's European average dollar content per vehicle partially offset by a 3% decline in European vehicle production volumes.
-The Company's average dollar content per vehicle grew by 14% or $45 to $362 for 2006 compared to $317 for 2005, primarily as a result of:
a) acquisitions completed during or subsequent to 2005, including CTS in February 2006;
b) the launch of new programs during or subsequent to 2005, including the Honda Civic;
c) increased production and/or content on certain programs, including:
• the Mercedes B-Class; and
• the BMW X3; and
d) an increase in reported U.S. dollar sales primarily due to the strengthening of the euro and British pound against the U.S. dollar.
-These factors were partially offset by:
a) the impact of lower production and/or content on certain programs, including:
• the Mercedes C-Class;
• the Mercedes A-Class;
• the Chrysler Voyager and Grand Voyager; and
• the Nissan Micra;
b) programs that ended production during or subsequent to 2005, including production on all MG Rover programs as a result of the MG Rover situation; and
c) incremental customer price concessions.

note 5) : External Production Rest of World
-External production sales in the Rest of World increased 57% or $98 million to $269 million for 2006 compared to $171 million for 2005.
-The increase in production sales is primarily a result of:
a) increased production sales at existing facilities in China;
b) the ramp-up of production at new facilities in China;
c) increased production sales at the Company's powertrain facilities in Korea;
d) an increase in production sales at a closures systems facility in Brazil;
e) the acquisition of a mirrors facility in South Africa; and
f) an increase in reported U.S. dollar sales due to the strengthening of the Korean Won and Chinese Renminbi, each against the U.S. dollar.
-These factors were partially offset by the closure during 2005 of an exterior systems facility in Brazil and an engineered glass facility in Malaysia.

note 6) : Complete Vehicle Assembly
-Complete vehicle assembly volumes increased 8% to 248,059 units for 2006 compared to 230,505 units for 2005. Complete vehicle assembly sales increased 7% or $268 million to $4.4 billion for 2006 compared to $4.1 billion for 2005.
The increase in complete vehicle assembly sales is primarily the result of:
a) the increase in assembly volumes for:
• the BMW X3; and
• the Saab 93 Convertible;
b) the launch of assembly programs during or subsequent to 2005, including:
• the Chrysler 300 in the second quarter of 2005; and
• the Jeep Commander in the first quarter of 2006; and
c) an increase in reported U.S. dollar sales as a result of the strengthening of the euro against the U.S. dollar.
-These increases were partially offset by a decrease in assembly volumes for:
• the Mercedes G-Class;
• the Mercedes E-Class 4MATIC;
• the Chrysler Voyager; and
• the Jeep Grand Cherokee.
The fourth quarter of 2006 marked the end of production for the Mercedes E-Class 4MATIC at the Company's Graz vehicle assembly facility, as DaimlerChrysler will assemble this vehicle in-house.

note 7) : Tooling, Engineering and Other
-Tooling, engineering and other sales increased 3% or $53 million to $2.03 billion for 2006 compared to $1.97 billion for 2005. The increase in tooling, engineering and other sales is primarily as a result of the strengthening of the Canadian dollar, euro and British Pound, each against the U.S. dollar. The sustained level of tooling, engineering and other sales reflects the Company's continued involvement in new production programs.
-In 2006, the major programs for which the Company recorded tooling, engineering and other sales were:
• GM's next generation full-size pickups and SUVs;
• the MINI Cooper;
• the Ford Edge and Lincoln MKX;
• the BMW X3, Z4, X5 and 3-Series programs;
• the Dodge Caliber;
• the Ford Escape;
• the Saturn VUE;
• the Freightliner P-Class;
• the Suzuki XL7;
• the Mercedes M-Class; and
• the Ford F-Series.

Contracts
-In October 2006, the Group received orders for drive train units from Japanese automakers, possibly Nissan and Honda. Products are transfer cases for 4WD vehicles, which are the system to distribute torque, and their supply is expected to start between 2008 and 2009. Magna's business with Japanese automakers has so far been limited to the supply of parts, and this will be the first time for the group to supply major drive system units to Japanese carmakers. The Company intends to take this opportunity to expand sales of profitable units, raising the sales in Japan to 300 billion yen in 2010 from the current 100 billion.

Business Partnership
-In June 2006, the Company announced that one of its group companies, Magna Steyr, would participate in a new automotive production project to be launched by the U.S. Chrysler group in Ohio, U.S.A. Chrysler set up "Suppliers Park" in its Toledo South plant in Ohio, inviting three suppliers, including Magna Steyr and started production of the 2007 Jeep Wrangler during 2006. In this project, the three suppliers as partners will operate and manage core processes for the automaker's vehicle production. The Company's Magna Steyr unit manages and operates the paint shop facility for the Chrysler Group’s new Toledo South Assembly Plant.

Joint Ventures
-In April 2006, the Company announced Cosma and Shin Young Metal announced the formation of a joint venture between their two companies. The transaction, in which Cosma has purchased a 32% interest in Shin Young Metal, was finalized on April 14, 2006.
-In December 2006, the Company announced that Magna Powertrain India, a member of the Group, which supplies engines and other powertrain parts, will begin production of automatic transmission parts outside Delhi in late 2007. The partner of this newly established 50/50 joint venture, which will supply flex plates to the Indiana market, is Amtek Auto Limited. There is already business relationship between Magma Powertrain and Amtek, as it supplies ring gears to the Company in North America.

Acquisitions
-In February 2006, the Company completed the acquisition from Porsche of CTS Fahrzeug-Dachsysteme GmbH, Bietigheim-Bissingen, one of the world’s leading manufacturers of roof systems for the automotive industry. In addition to Porsche, its customers include DaimlerChrysler, Ferrari, Peugeot and General Motors. CTS has six facilities in Europe and two facilities in North America with approximately 1,100 employees. The total consideration for the acquisition of CTS amounted to $271 million, consisting of $203 million paid in cash and $68 million of assumed debt.
-In November 2006, the Company announced that its operating unit, Cosma International Inc., an auto-body structure and outer panel manufacturer, has acquired VAB (Vyroba Automotivnych Blotnikov), a stamping parts manufacturer in Poland. The Company aims to expand Cosma's operating base in a growing Eastern European market with the acquisition and absorb the needs of automakers promoting global deployment.
-The Company acquired a 41% interest in Shin Young Metal Ind. Co. (“Shin Young”), a Korean-based supplier of major stampings, welded assemblies and tooling. Shin Young operates five manufacturing sites in Korea, and is a Tier 1 supplier to Hyundai. Hyundai and Shin Young also jointly own a facility in Alabama. The Company anticipates that this investment may provide us opportunities for new business in Korea and elsewhere in the world, as Hyundai continues to expand globally.

Overseas Activities
-In March 2006, the Company announced it would step up its efforts to win new orders from Japanese automakers in Asia. It aims to seek and accept new needs in 2008 and later with a focus on countries such as China and Thailand where Japanese automakers are planning to increase production. At the beginning of 2006, its three new offices were opened in Atsugi city, Kanagawa prefecture, Tochigi prefecture, and Hiroshima prefecture in the neighborhood of major Japanese automakers' R&D centers. In addition, the number of employees in its Japan branch in Tokyo will be increased from 70 to 100 in stages. With these capability enhancements, the Company will improve the ability of making proposals as well as speed up its product development to triple the sales to Japanese automakers to 300 billion yen in 2010. It has already succeeded in expanding its sales in Europe, and has now a prospect of increasing the sales to Japanese automakers to 190 billion yen in 2007.
-In March 2006, the Company will strengthen its business setups for in-vehicle electronics and others in order to win new orders from Japanese automakers, the Company's President Mark T. Hogan said at a press conference in Tokyo. The supplier will establish a new company exclusively for electronics devices, mainly control units for safety and driving assist devices, and will actively make development proposals and marketing efforts. It will also consider local production in Asian countries, including Japan, of the electronics as well as convertible and other roof systems.

Privatizations
- The Company completed three privatizations over a three-month period in 2005.
(a) TESMA : On Feb 1 2005, Magna and Tesma International Inc. jointly announced that Tesma's shareholders had approved the previously announced plan under Ontario law for Magna to acquire all of the outstanding Class A Subordinate Voting Shares of Tesma not owned by Magna. The arrangement was approved by over 71% of the votes cast by holders of Tesma Class A Subordinate Voting Shares, voting separately as a class. The arrangement was also approved by over 60% of the votes cast by the "minority" holders of Tesma Class A Subordinate Voting Shares. Votes cast by Magna, and parties related to Magna, were excluded for the purposes of the "majority of the minority" approval requirement. The privatization transaction became effective on February 6.
(b) DECOMA : On Feb 28 2005, Magna and Decoma International Inc. jointly announced that Decoma's shareholders approved the previously announced plan under Ontario law for Magna to acquire all of the outstanding Class A Subordinate Voting Shares of Decoma not owned by Magna. The arrangement was approved by over 99% of the votes cast by holders of Decoma Class A Subordinate Voting Shares, voting separately as a class. The arrangement was also approved by over 95% of the votes cast by the "minority" holders of Decoma Class A Subordinate Voting Shares. Votes cast by Magna, and parties related to Magna, were excluded for the purposes of the "majority of the minority" approval requirement. The privatization transaction became effective on March 6.
(c) INTIER : On Mar 30 2005, Magna and Intier jointly announced that Intier's shareholders approved the previously announced plan under Ontario law for Magna to acquire all of the outstanding Class A Subordinate Voting Shares of Intier not owned by Magna. The arrangement was approved by 75.04% of the votes cast by holders of Intier Class A Subordinate Voting Shares, voting separately as a class. The arrangement was also approved by 62.90% of the votes cast by the "minority" holders of Intier Class A Subordinate Voting Shares. The privatization transaction became effective on April 3, 2005.

R&D Expenditure
-The Company has historically emphasized technology development and has a policy, embodied in its Corporate Constitution, to allocate a minimum of 7% of its Pre-Tax Profits (as defined in the Corporate Constitution) for each financial year to research and development during that financial year or the next succeeding financial year.

R&D Structure
-The Company's past development activities have resulted in a number of new and improved manufacturing processes and proprietary products. The Company expects that its involvement in the development of manufacturing technology and product technology in cooperation with automobile manufacturers will increase as automobile manufacturers further involve suppliers in the vehicle development process.
-In May 2006, the Company announced it would be stepping up efforts to reinforce its development and production capabilities in a bid to make a full-scale inroad into the Japanese market. Within the next two years, it intends to establish a R&D center in Japan, as well as a supply structure of modules and other products to the Japanese market from its Chinese plant. The Company makes sales of 110 billion yen to Japanese affiliated automakers, but most of them are for their overseas plants due to absence of its own development and production facilities in Japan. The auto parts supplier is planning to increase the share of sales to Japanese automakers to 15%, or three times as large as the present level by 2010 through conducting more aggressive market opening activities.
-In September 2006, Magna Steyr (Austria), a member of the group of the Company, an entrusted developer and producer of automobiles and module units, would fully launch a strategy of developing and purchasing by utilizing Leading Competitive Countries (LCCs.) The company will double the staff to 100 at its R&D centers in China, India and Hungary, respectively, in the next three years. At the same time, the company will build a purchasing system in LCCs outside Europe, such as Asian countries, while establishing a procurement system of module units in Eastern Europe. Magna Steyr expects these efforts will improve its sales promotion capability in terms of reducing development and purchasing costs, leading to winning new orders from Japanese and other automakers.
-In October 2006, Magna Steyr would step up its efforts to get development business from Japanese automakers. In case an automaker faces a temporary shortage of manpower at the peak of new car developments, Magna Steyr intends to offer support to take over development functions beyond the automaker's capacity. Taking advantage of its expertise and capability to start the development work within six months of receiving the request by flexibly responding to development needs, the company aims to explore new business opportunities.

New Product Development
-In April 2006, the Company developed a control system to optimize airbag deployment utilizing an image sensor. A current "Intelligent" system, which is designed to control deployment in two stages, and is being widely adopted, generally assumes the physical constitution of an occupant by the weight measured by a built-in sensor in the seat for control, but is unable to detect the occupant's position. The new system constantly monitors physical constitutions and positions of all occupants by a camera mounted on the overhead console. This mechanism provides for highly intelligent controls including automatic adjustment of the deployment level or even invalidation of airbag deployment when it detects a possibility of an occupant injury caused by the airbag due to an improper sitting position. The Company will promote marketing of this next-generation safety system targeting Japanese automakers in search of new demand.
-In June 2006, the Company had developed a new system called " Active Torque Control Unit " to obtain full command of automobiles' yaw moment and higher handling performance. The unit for rear axles is designed mainly for 4WD vehicles and provides full control of torque on right and left wheels by generating the yaw moment at the early stage in quick response to the driver's steering movement. The Company will market the new product to Japanese and other automakers as a high performance, stable system to obtain sharp handling performance, aiming at winning new orders. The new unit developed by the Company makes the best use of the sophisticated sensor technology and has quickened responsiveness so that the driver's steering motion speed and angle may be reflected on torque control immediately after the driver starts steering operation. By doing so, it has become possible to control torque in the early stage as the yaw moment gets higher, and the system provides a feeling of "easy to make turns " steering. Using mechanical limited slip differentials (LSDs) as a base, the new unit controls the LSDs' effectiveness and distributes torques electronically.

Capital Expenditure

-In 2006 the Company invested $793 million in fixed assets. While investments were made to refurbish or replace assets consumed in the normal course of business and for productivity improvements, a large portion of the investment in 2006 was for manufacturing equipment for programs that launched during 2006, or will be launching subsequent to 2006, including equipment for the following major programs:
• GM's next generation full-size pickups and SUVs;
• the MINI Cooper;
• the Ford Edge and Lincoln MKX;
• the BMW X3, Z4, X5 and 3-Series programs; and
• the Dodge Caliber.

Overseas Investments
-In February 2006, Cosma, an operating group of the Company, announced the addition of two new facilities, one in France and the other in the United States. The new facility in Henriville, France, will provide medium-to-large size stampings and assemblies to its European automotive customers. The second facility, located in Bowling Green, Ohio, was purchased from Fuji Technica Inc. This facility will specialize in large metal stampings and assemblies for the North American automotive market.
-In September 2006, Magna Steyr Fahrzeugtechnik AG & Co KG, a subsidiary of the Company, planned to establish a commissioned production business in the global market for niche models with annual production volume of several ten thousands. It will completely renovate its headquarters plant in Austria between 2008 and 2010 to develop a system of producing several models on a single assembly line with a maximum block capacity to respond to orders from four automakers. Based on this as a mother factory, Magna Steyr plans to develop production operations sequentially in North America, Russia and Asia and will prepare itself to meet the needs of automakers including Japanese for production of small volume models and complete knock down (CKD) vehicles.
-In October 2006, the Company planned to start manufacturing pickup body parts in Thailand within two years. With its annual production volume exceeding 1 million units supported by strong exports, the Thai government is promoting domestic vehicle production, targeting over 2 million units in 2010. By establishing a body parts manufacturing facility in Thailand, the Company aims to meet new needs and requirements from global automakers including Japanese companies that are boosting production in Asia. The project will mark the first time for the Canada-based supplier to make automotive components in Southeast Asia, following its expansion into China and India.