U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 40-F

|(Check One)                              |                                                                                        
|---------------------------------------- | ---------------------------------------------------------------------------------------
|o                                        | Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934   
|                                         | or                                                                                     
|ý                                        | Annual report pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934
|For the fiscal year ended July 31, 2002.
|Commission File Number: 000-26104       

TESMA INTERNATIONAL INC.

(Exact name of Registrant as specified in its charter)

|ONTARIO, CANADA
(Province or other jurisdiction of incorporation or organization) |  | 3714 (Primary Standard Industrial Classification Code Number (if applicable)) |  | 98-0128591 (I.R.S. Employer Identification Number (if Applicable))
|--------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | ------------------------------------------------------------------

1000 TESMA WAY, CONCORD, ONTARIO, CANADA L4K 5R8 (905) 417-2161 (Address and Telephone Number of Registrant's Principal Executive Offices)

CT
CORPORATION, 1633 BROADWAY, NEW YORK, NEW YORK, USA 10019 (212) 246-5070 (Name, Address (Including Zip Code) and Telephone Number (Including Area Code) of Agent For Service in the United States)

Securities
registered or to be registered pursuant to Section 12(b) of the Act.

|Title of each class |  | Name of each exchange on which registered
|------------------- |  | -----------------------------------------
|NONE                |  | N/A                                      

Securities registered or to be registered pursuant to Section 12(g) of the Act:
CLASS A SUBORDINATE VOTING SHARES

Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE

|For annual reports, indicate by check mark the information filed with this Form:
|--------------------------------------------------------------------------------
|ý Annual Information Form                                                       

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.



Indicate
by check mark whether the Registrant by filing 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 (the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to the Registrant in connection with such rule.

Yes o    No ý

Indicate
by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No o

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Form 40-F Table of Contents

Document

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1.    Annual Information Form of Tesma International Inc. (the "Registrant" or "Company") dated December 9, 2002 for the fiscal year ended July 31, 2002.

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LOGO

Tesma International Inc.

Annual Information Form

December 11, 2002

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ANNUAL INFORMATION FORM    TABLE OF CONTENTS

|         |  |                                                                                       |  | Page
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|ITEM 1.  |  | INCORPORATION                                                                         |  | 3   
|ITEM 2.  |  | GENERAL DEVELOPMENT OF THE BUSINESS                                                   |  | 3   
|ITEM 3.  |  | NARRATIVE DESCRIPTION OF THE BUSINESS                                                 |  | 10  
|ITEM 4.  |  | SELECTED CONSOLIDATED FINANCIAL INFORMATION                                           |  | 20  
|ITEM 5.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 22  
|ITEM 6.  |  | MARKET FOR SECURITIES                                                                 |  | 22  
|ITEM 7.  |  | DIRECTORS AND OFFICERS                                                                |  | 24  
|ITEM 8.  |  | CORPORATE CONSTITUTION                                                                |  | 26  
|ITEM 9.  |  | OTHER FACTORS                                                                         |  | 27  
|ITEM 10. |  | ADDITIONAL INFORMATION                                                                |  | 34  

Throughout
this Annual Information Form, when we use the terms "we", "us", "our" and other similar expressions, we are referring to Tesma International Inc. and its subsidiaries,
unless the context otherwise requires.

All
references in this Annual Information Form to specific fiscal years are references to the fiscal year ended on July 31 of the year named. All references to "$" or "dollars"
are references to Canadian dollars, unless otherwise specified.

FORWARD-LOOKING STATEMENTS

The contents of this Annual Information Form (and the documents incorporated by reference) contain statements which, to the extent that they are not recitations
of historical fact, may constitute "forward-looking statements" within the meaning of Section 21E of the United States Securities Exchange Act of 1934. Forward-looking statements may include
financial and other projections, as well as statements regarding our future plans, objectives or economic performance, or our underlying assumptions. The words "estimate", "anticipate", "believe",
"expect" and other similar expressions are intended to identify forward-looking statements. Persons reading this Annual Information Form are cautioned that such statements are only predictions, and
that our actual future results or performance may be materially different.

Forward-looking
information involves certain risks, assumptions, uncertainties and other factors which may cause actual future results or anticipated events to differ materially from
those expressed or implied in any forward-looking statements. In our case, these factors include, but are not limited to: our operating and/or financial performance; our ability to finance our
business requirements, including raising required funding as necessary; changes in the various economies in which we operate; our relationship with Magna International Inc.; fluctuations in
interest rates; changes in consumer and business confidence levels; consumers' personal debt levels; vehicle prices; the extent and nature of purchasing or leasing incentive campaigns offered by
automotive manufacturers; environmental emission and safety regulations; fuel prices and availability; the continuation and extent of outsourcing by automotive manufacturers; the extent and continued
use of steel as a primary material for automotive parts versus alternative materials (such as aluminium and plastics); our ability to continue to meet customer specifications relating to product
performance, cost, quality, delivery and service; industry
cyclicality or seasonality; trade and/or labour issues or disruptions; customer pricing pressures, pricing concessions and cost absorptions; warranty, recall and product liability claims; actual
levels of program production volumes by our customers compared to original expectations, including program cancellations or delays and changes in product mix; our dependence on certain engine and
transmission programs and the market success and consumer acceptance of the vehicles into which such powertrain products are installed; our

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relationship with and dependence on certain customers; currency exposure; technological developments by our competitors; governmental, environmental and regulatory policies and our ability to
anticipate or respond to changes therein; and other changes in the competitive environment in which we operate. For a more detailed discussion of some of these factors, reference is made to the
disclosures regarding risks and uncertainties set out in "ITEM 9.  OTHER FACTORS". We expressly disclaim any intention and undertake no obligation to update or
revise any forward-looking statements to reflect subsequent information, events, results, circumstances or otherwise.

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ITEM 1. INCORPORATION

NAME AND INCORPORATION

We are organized under theBusiness Corporations Act(Ontario) (the "OBCA") pursuant to restated articles of
incorporation dated March 17, 1999. We are the successor to a corporation incorporated on June 27, 1989 under the OBCA which amalgamated with Tesma Manufacturing Inc. and Blau
Autotec Inc. pursuant to articles of amalgamation filed on July 31, 1995. Our registered and principal office is located at 1000 Tesma Way, Concord, Ontario, Canada L4K 5R8
(telephone number: (905) 417-2100).

We
are controlled by Magna International Inc. ("Magna") through Magna's direct and indirect ownership of 100% of our Class B Shares which, in the aggregate, represent
approximately 88.7% of the total votes attaching to all of our outstanding Class A Subordinate Voting Shares and Class B Shares as at October 28, 2002 (i.e. the record date
for determining the holders of record of our Class A Subordinate Voting Shares and Class B Shares entitled to receive notice of the annual meeting of shareholders held on
December 5, 2002. See "ITEM 6. MARKET FOR SECURITIES" and "ITEM 9. OTHER FACTORS  CONTROL OF TESMA AND RELATIONSHIP WITH MAGNA".

INTER-CORPORATE RELATIONSHIPS

A list of our principal subsidiary entities as at July 31, 2002, including ownership interests in such subsidiary entities and their respective
jurisdictions of incorporation or formation, is set out on Schedule "A". Our legal structure is not necessarily indicative of our operational structure.

ITEM 2. GENERAL DEVELOPMENT OF THE BUSINESS

OVERVIEW

We operate in the automotive powertrain industry segment, and we are a leading supplier across certain of our primary product groups of engine, transmission and
fueling components, assemblies, modules and systems for cars and light trucks.

We
design, engineer and manufacture our products, primarily as a "Tier 1" supplier (see "ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS  SALES AND
MARKETING"), for our automotive original equipment manufacturer ("OEM") customers. Although we are principally a supplier to OEMs in North America and Europe, we have a diversified worldwide
customer base that spans each of the four major automotive markets  North America, Europe, Asia Pacific and South America. As at July 31, 2002, we had
approximately 4,700 employees, 22 manufacturing facilities in Ontario, Nova Scotia, Michigan, Germany, Austria and South Korea, and 2 advanced product research centres in Ontario and Austria.

Approximately
78% of our sales in fiscal 2002 represented products manufactured in Canada and the United States, with the remaining 22% manufactured in Europe and Asia Pacific. In North
America, our primary customers are the various North American operating divisions and subsidiaries of General Motors Corporation ("GM"), Ford Motor Company ("Ford") and DaimlerChrysler AG
("DaimlerChrysler"), which collectively accounted for approximately 58% of our sales in fiscal 2002. Our customer base in Europe is diversified, and includes virtually all significant OEMs with
vehicle assembly operations in Europe. In the aggregate, our European customers accounted for approximately 27% of our sales in fiscal 2002, with a majority of such sales made to the various European
operating divisions and subsidiaries of Volkswagen AG  Audi Group ("Volkswagen"), DaimlerChrysler and GM. Worldwide sales to GM, Ford, DaimlerChrysler and
Volkswagen represented approximately 76% of our sales in fiscal 2002.

ORGANIZATION AND POLICIES



We follow a strategy of functional and operational decentralization which we believe increases flexibility, customer responsiveness and productivity. Our
manufacturing operations are conducted through plants or operating divisions which function as autonomous operating units. Each manufacturing facility is a separate profit centre managed by a general
manager with production expertise who has discretion, within guidelines

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established by our Board of Directors (our "Board") or by corporate management, to determine rates of pay, hours of work, sources of supply and contracts to be performed. Our plants and operating
divisions are supported by corporate and group staff who provide business development, information systems, manufacturing, financial, treasury, legal, advanced product development, and sales and
marketing services.
Corporate management establishes operating policies that are consistent with the guidelines established by our Board, provides coordination and specialized assistance to our plants and operating
groups, develops business opportunities and formulates strategic product and other plans.

Our
plants and operating divisions are arranged geographically to match the requirements of our customers in each of the North American, European and Asia Pacific markets. Most of these
production facilities have the technological product and processing capabilities to supply a variety of parts and assemblies that span across our three primary product groups namely, engine,
transmission and fuel technologies. In order to optimize manufacturing efficiencies and to better implement our specific product strategies on a coordinated basis: during fiscal 2000 we introduced
"lead" divisions in North America for each of our three product technologies groups; during fiscal 2001 we appointed group management with an operations focus for each of these groups; and, during
fiscal 2002 we expanded the engineering and product development resources for each group and extended the scope and mandate of our group management teams beyond North America to include our operations
in Europe and Asia Pacific. While our Litens Automotive Partnership (and its subsidiary entities) (collectively, "Litens Automotive") forms part of our engine technologies product group, it operates
and functions under its own group management team.

For
a broader discussion of our operations, see "ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS".



We are committed to a number of operating policies and principles, including employee equity participation and profit sharing, incentive-based management
compensation and an employee's charter of rights. See "ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS  HUMAN RESOURCES".

RECENT TRENDS IN THE AUTOMOTIVE INDUSTRY

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





OEMs continue to seek ways to reduce their cost of producing vehicles as competition for market share among them has become more intensified. In addition
to seeking cost efficiencies in their own production, marketing and administrative structures, OEMs have placed significant pressure on automotive suppliers to reduce the price of the
components, assemblies and modules they supply. This price reduction pressure has come in different forms, including: long-term supply agreements containing pre-determined
price reductions for each year of production; one-time price reduction demands; pressure to absorb more design and engineering costs previously paid for by OEMs and to recover these
costs through amortization in the piece price of the particular components designed or engineered by the supplier; and pressure to own and/or capitalize tooling and recover these costs through
amortization in the price of the components produced by this tooling. In some cases,

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suppliers may bear the risk of not being able to fully recover the design, engineering and tooling costs if vehicle production volumes are lower than anticipated. Automotive suppliers face additional
pricing pressures as a result of requirements to absorb inflationary increases in the costs of materials, labour and manufacturing overheads over the life of production programs, as well as through
various electronic commerce initiatives by OEMs which facilitate electronic quoting, sourcing and transaction processing.



In recent years, the automotive industry has undergone a wave of global consolidation of OEMs which can be attributed to several factors, including
increasing pressure on OEMs to reduce costs and achieve greater economies of scale, the expansion of free trade zones between major trading partners in North America, the European Union and
elsewhere, the accelerated growth of automotive markets in Asia and Latin America and the development of free market economies in Eastern Europe. Some examples of the globalization and consolidation
of OEMs include:



The
cost pressures which have resulted in the consolidation of OEMs have also stimulated the development by OEMs of global vehicle platforms. In order to achieve economies
of scale on a worldwide basis, OEMs, together with their global affiliates and partners, are increasingly developing vehicles based on common manufacturing platforms and which share many components,
including engine and powertrain variations, but which have distinct styling, different branding and are produced in different parts of the world. The development of these "world cars" results in
significantly reduced design, development and engineering costs and maximizes the purchasing power of OEMs with respect to raw materials and components required in vehicle production.

The
above-described trends have fostered the globalization of automotive suppliers. In order to be responsive to the needs of OEMs, primary or "Tier 1" suppliers are required to have the
financial strength, technical capabilities and geographic reach required to support the design, engineering, manufacturing, sales and program support needs of OEMs in many of the countries in
which they operate. In addition, as OEMs have adopted "just-in-time" manufacturing processes and delivery techniques, Tier 1 suppliers have been required to locate their
facilities close to the manufacturing plants of their customers in various parts of the world.

Evolving Role of Automotive Suppliers and Their Progression Up the "Value Chain"

Historically,
automotive suppliers had a relatively limited role in the vehicle development process. Development of a vehicle from concept to production often took seven to eight years,
with OEMs designing and engineering the vehicle as a whole, as well as many of the specific components required to make the vehicle. OEMs also performed a significant portion of the
quality control testing and component sub-assembly required. The role of suppliers was limited to manufacturing components in accordance with the design and engineering specifications
supplied by OEMs, which often purchased the same parts from different suppliers, including affiliated component manufacturers. When delivered to OEMs, these components often formed part of significant
inventory levels maintained by them.

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Currently,
Tier 1 suppliers participate in higher value-added activities which more closely resemble the activities which were traditionally performed by OEMs. Tier 1 suppliers
are increasingly involved at early stages in the design, development and engineering of components and systems and have assumed increased responsibility for sub-assembly work and quality
control testing. In some cases, suppliers have assumed responsibility for designing, engineering, developing and assembling complete vehicles.



In recent years, OEMs have increasingly "outsourced" their requirements for components, assemblies, modules and systems. The primary factors driving this
outsourcing have been the need by OEMs to reduce costs, minimize the time required to bring a new vehicle to market, capitalize on the technical and engineering expertise of Tier 1 suppliers
and minimize capital expenditures. Additional factors affecting the decision to outsource include the degree of unutilized capacity in OEMs' manufacturing facilities, restrictions in collective
bargaining agreements and the impact of outsourcing on labour relations.

The
significant cost and competitive pressures faced by OEMs, combined with the expansion in the capabilities of their suppliers and the trend toward outsourcing, has increasingly
resulted in OEMs out-sourcing production of larger assemblies and portions or "modules" of vehicles to their Tier 1 suppliers. This modularization of production enables
OEMs to achieve significant cost savings by taking advantage of their suppliers' lower variable costs, and has had the effect of simplifying the vehicle assembly process, as well as reducing
the fixed cost investments of OEMs.

In
order to properly manage the production of outsourced modules, Tier 1 suppliers have had to expand their capabilities and expertise. For example, module suppliers require program
management expertise in order to manage large numbers of sub-suppliers which had previously been managed by OEMs, as well as extensive logistics capabilities to coordinate
just-in-time deliveries from these sub-suppliers and just-in-time deliveries to OEMs. Tier 1 suppliers have also had to develop a
broader technical understanding of systems beyond their own products, as well as a knowledge of the process of integrating various automotive systems, in order to ensure the proper fit, finish and
functioning of the modules supplied by them. As Tier 1 suppliers have successfully managed the challenges posed by modularization, OEMs have begun sourcing increasingly larger, more complex
modules (with increased content and features), as well as the management or integration of complete automotive systems to their most capable suppliers.



As OEMs attempt to broaden the range of vehicles they offer, differentiate their products from those of their competitors, expand the number of market
segments in which they compete, extend the life of their existing vehicle platforms, respond to consumer lifestyle trends and meet the unique requirements of the vehicle buying public in different
geographic markets, they are increasingly introducing lower volume derivative or
niche vehicles. Niche vehicles are new vehicle models which are built off existing vehicle platforms, and usually consist of convertibles, sports cars and/or
all-wheel/four-wheel drive sports utility or cross utility vehicles. OEMs are also increasingly "refreshing" existing models during their program life and developing
model variants with factory-installed styling packages. This trend towards niche vehicles provides certain Tier 1 suppliers, who have capabilities which resemble those of the OEMs themselves,
with increased opportunities to provide complete product and system design, engineering and/or assembly services, including, in some cases, complete vehicle assembly.



North American subsidiaries of foreign-based (primarily Japanese and European) OEMs (the "New Domestic OEMs") represented approximately 26% of
aggregate North American car and light truck production in calendar 2001, as compared to approximately 25% in calendar 2000. Over the next several years, these New Domestic OEMs are
expected to continue to increase their North American production volumes as their market share increases by expanding existing assembly facilities and building new facilities. A number of factors,
including the improving quality and cost effectiveness of North American automotive suppliers, currency

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fluctuations, loosening of the traditional Japanese "keiretsu" supplier relationships and the North American Free Trade Agreement, are expected to result in these New Domestic
OEMs increasing their out-sourcing activities to increase the North American content of their vehicles. Accordingly, the New Domestic OEMs represent significant growth
potential for North American automotive suppliers.

BUSINESS STRATEGY

Our business strategy is to capitalize on the above-described trends in the automotive industry as they apply to the vehicle powertrain product area and to
continue to build on our position as a leading supplier to OEMs across several of our product lines. Accordingly, we believe that our future growth in sales and profits will be generated
primarily through our: expanding production of modules and systems by focusing on value-added, highly-engineered and proprietary products; emphasizing technological innovation through advanced
research and development; maintaining and capitalizing on strong customer relationships and building new ones; pursuing international growth opportunities through strategic acquisitions, the expansion
of existing facilities, joint ventures and licensing arrangements; continuously striving to improve production efficiencies within our plants and operating divisions; and capitalizing on the
opportunities presented by e-commerce to streamline business processes and improve communications between OEMs and suppliers. The following summarizes the key elements of our
business strategy.



We intend to continue our strong focus on technologically-driven growth through our commitment to research, development and innovation, in order to maintain our
leading position across a number of our product lines and to offer our customers a competitive advantage through our technology. Our commitment
to technological development is reflected in our Corporate Constitution which requires us to allocate a minimum of 7% of our Pre-Tax Profits (as defined in our Corporate Constitution) to
research and development. See "ITEM 3.  NARRATIVE DESCRIPTION OF THE
BUSINESS  TECHNOLOGY  Research and Development" and "ITEM 8. CORPORATE
CONSTITUTION  REQUIRED ALLOCATIONS  Research and Development". We focus our research and development efforts both on
enhancing existing technologies and on identifying technologies that we need to develop or acquire in order to strengthen our core product offerings or otherwise implement our business strategy. In
recent years, our development activities have resulted in a variety of new or improved components, assemblies, equipment, tools, operating processes and proprietary technologies, including industry
standard automotive pulleys, single belt accessory drive tensioners and systems, one-piece roll-formed flexplates, die/flow formed transmission clutch housings, overrunning
alternator decoupler assemblies, integrated engine front cover modules, engine balance shaft assemblies and stainless steel fuel tank assemblies. Examples of our current modular product development
efforts include camshaft phaser systems, complete air conditioning clutch systems, coolant management systems, variable flow engine water pumps, direct drive water pumps, variable proportional valves,
advanced fuel filler modules (including capless or "comfort" refueling systems) and proprietary clutch technologies for starter-generator, transmission and four-wheel/all-wheel
drive system applications.



We believe that products that are highly engineered or that involve multiple processing technologies and assembly operations generally carry better returns than
simple commodity-type products, and that a significant portion of our internally generated product growth in recent years has been the result of our design and engineering capabilities and
product innovation. Accordingly, to enhance our focus on the development and supply of high value-added and highly engineered products, during fiscal 2002 we established group-specific lead
engineering and project management teams to supplement product development initiatives in each of our three principal product areas, including: front covers and water pumps in the engine technologies
area; torque converters, components for continuously variable transmission systems and clutch pack assemblies in the transmission technologies area; and fuel filler modules and stainless steel tank
assemblies in the fuel technologies area. These group engineering and project management teams also assist in the coordination of engineering, development and manufacturing initiatives among the
plants and operating divisions within their respective groups.

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As
a result of our technical design and engineering capabilities and our reputation for innovation and development, we have been able to secure significant market share and penetration
for certain of our product lines with OEMs in North America, Europe and, more recently, Asia Pacific (and their suppliers). For example, our development and commercialization (through Litens
Automotive) of the serpentine accessory drive system allowed OEMs to significantly reduce the space required at the front end of a vehicle's engine compartment and made us a leading supplier of
single belt accessory drive tensioners and systems. More recently, our development of the integrated engine front cover module (consisting of, in some applications, a cast and machined aluminum cover
with integrated water and/or oil pumps, tensioner, pulleys and other accessory drive system products) has substantially reduced the number of individual components supplied to OEMs, reduced assembly
requirements and, as a consequence, reduced overall costs to OEMs.



We have established strong relationships with our OEM customers based on our history of developing proprietary products, our significant engineering and design
capabilities, our physical manufacturing presence in North America, Europe and Asia Pacific, as well as our locally-based sales and engineering resources in all four major automotive markets
(including South America). These customer relationships allow us to identify business opportunities, including those arising from OEM outsourcing and supplier consolidation trends, and to react to
customer needs in the early stages of vehicle, engine or transmission development activities. We believe that these relationships will enable us to continue to successfully target "strategic" engine,
transmission and fuel programs, increase the content and penetration of our existing product lines and develop new products that complement our value-added, engineered product and modules focus.

To
date, sales to other suppliers to OEMs have accounted for a relatively small percentage of our sales (15% of sales in fiscal 2002 and fiscal 2001). We continue to recognize the
potential of this market segment and we are endeavouring to increase our sales to such suppliers, particularly to those who supply OEMs in Asia Pacific. We believe that increased sales
activities to such other suppliers to OEMs may lead to potential strategic alliances, joint product development opportunities and further direct business and sourcing relationships with the
OEMs themselves.



In response to the increased globalization of the automotive industry in recent years, our European operations have allowed us to meet more completely the
expanding worldwide needs of our OEM customers for the supply of common and similar products in multiple markets. Our July 1995 acquisition of the Blau group of companies, established suppliers
of fuel caps and other fueling and cooling components and related products in Europe, strengthened our existing European presence and diversified our customer and product base outside of North
America. Similarly, the January 1997 addition of Eralmetall GmbH (now Eralmetall GmbH & Co. KG) complements our current aluminum processing capabilities, enhances
our modular products strategy, and establishes us as one of the few aluminum die cast and machining suppliers in the automotive industry with manufacturing facilities in both North America and Europe.

Our
manufacturing presence and advanced product development resources in both North America and Europe enable the cross-development and cross-transfer of products and technologies within
and among the two largest automotive markets. With respect to Asia Pacific, our January 1999 acquisition of Hanwha Automotive Components Corporation (now known as HAC Corporation) and its two
manufacturing facilities located near Seoul, South Korea, enhanced our existing oil and water pump capabilities and enlarged our customer base in the United States, Asia Pacific and Europe. We have
also established local sales and engineering support in Japan and Brazil to take advantage of export sales opportunities to these markets. As the Asian Pacific and South American markets continue to
mature over the next decade, we anticipate that vehicle demand and production rates will increase at annual growth levels which exceed those of the North American and European automotive markets. Our
sales and engineering capabilities in North America, Europe, South Korea, Japan and Brazil will assist in satisfying the demands of OEMs for support and full service supply in the four major
automotive markets.

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In the past, we have offset OEM requests for pricing concessions and cost absorptions through process and product improvements. We will continue to strive to
streamline our production processes, increase capacity utilization and reduce costs as a percentage of sales, with our focus on a "clean and lean" approach to operating excellence, which includes a
commitment to ongoing employee training and skills enhancement. The goal for our manufacturing divisions is to be recognized as the "best in class" leaders in efficient and orderly production.

We
have historically developed and marketed a broad variety of products and technologies utilizing our specialized metal stamping and spinning, casting and flow-forming
capabilities. We will continue to develop or acquire new products and technologies which we believe will complement or enhance our current capabilities.



We believe that, in appropriate cases, joint ventures and joint development arrangements provide an effective means of gaining access to new technologies and/or
new geographic markets. In the past, we have entered into joint ventures and/or joint development arrangements with automotive parts, tooling and equipment manufacturers to design and manufacture new
products for the North American market that in some cases utilize the other party's technology. Joint ventures or joint development arrangements may include technology assistance and/or licensing
arrangements which provide us with access to the technology and operating expertise of the joint venture partner or its foreign parent. We intend to continue to assess both potential joint venture and
joint development opportunities and, where appropriate, to identify and license technologies developed by third parties in order to maximize both existing and perceived future global market
opportunities. For example, during fiscal 1996, we established STT Technologies Inc. ("STT") as a joint venture with two German partners to develop and supply proprietary oil pumps for North
American engine and transmission applications, using product and processing technologies successfully implemented in the European and Asia Pacific automotive markets. (During fiscal 2002, this joint
venture was restructured so that our ownership interest increased to 75%, but STT continues to be a jointly controlled entity between us and one of the two original German partners.) In addition,
during fiscal 2001, we concluded a licensing and cooperation arrangement with a European OEM to introduce proprietary camshaft phasing technology (for variable engine valve timing) to the North
American automotive market (and were awarded a production contract for a V8 engine program commencing in fiscal 2003).

We
have also licensed our proprietary technology in certain geographic markets where we determined not to establish local operations. For example, during fiscal 1996, we licensed our
proprietary one-piece roll-formed flexplate technology to a domestic manufacturer in the Japanese automotive market. Also, during fiscal 1997,
we licensed certain coolant reservoir (expansion/surge tank) cap technology to a South Korean manufacturer to supply the Asia Pacific automotive market. In addition, through Litens Automotive, we have
been licensing certain proprietary timing and accessory drive tensioner technologies to a domestic manufacturer for the Japanese market for over 10 years. During fiscal 2001, this license
arrangement was extended for a further 9 year period and, in fiscal 2002, was expanded to include a sub-license to the licensee's Thai subsidiary and a limited license to the
licensee's South Korean affiliate.

ACQUISITIONS AND DIVESTITURES

Historically, we have focused on developing or acquiring new technologies and assets that will further our business strategy and enhance our long-term
earnings growth. We intend to continue this focus in the future and will examine opportunities to acquire strategic businesses which complement, enhance or otherwise add to our existing technological
base. We analyse all potential acquisitions and other capital investments using a variety of criteria, with the long-term objective of continuing to generate strong earnings growth and
maximize shareholder returns. The following is a summary of the acquisitions and divestitures that we have completed since 1995:



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On
November 1, 2001, we executed definitive agreements with Magna providing for our merger with the Magna Steyr group (a European-based vehicle engineering, drivetrain and
assembly business controlled by Magna), subject to the satisfaction of certain conditions. On December 11, 2001, we jointly announced with Magna the decision not to proceed with the proposed
merger at that time, due to the negotiation by Magna Steyr of a potential acquisition transaction (the "Eurostar acquisition") which, if successfully completed, could have substantially impacted Magna
Steyr's future business plans. On March 12, 2002, we announced our decision not to proceed with the merger in light of the agreement concluded by Magna Steyr to complete the Eurostar
acquisition. Notwithstanding this decision, we intend to continue to cooperate with Magna Steyr in the sharing of resources and expertise to take advantage of the relationships developed during our
merger negotiations and to realize some of the cross-group benefits and synergies that were identified.

FINANCING AND SECURITIES TRANSACTIONS

On July 18, 2002, we completed the public offering of 2.85 million of our Class A Subordinate Voting Shares at a price per share of $35.15.
Total cash proceeds of this offering, net of underwriters' fees and other related costs, totalling approximately $95.8 million will be used for general corporate purposes, including investing
in strategic opportunities which may include future acquisitions, joint ventures, new technologies and other investments.

ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS

OPERATIONS OVERVIEW

Our operations are substantially all related to the automotive powertrain business and include the design and manufacture of engine, transmission and fueling
components, assemblies, modules and systems for OEMs or, to a significantly lesser extent, their Tier 1 powertrain component manufacturers, as well as certain products for the automotive
aftermarket. While a substantial portion of our revenues are derived from sales to the North American and European facilities of the major OEMs, our products are also delivered to customers in Japan,
South Korea, Taiwan, Singapore, Indonesia, Thailand, Philippines, Australia, Brazil, Argentina, Venezuela and South Africa.

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We
operate globally and our plants and operating divisions are arranged geographically to match the requirements of our customers in each major automotive market. Most of these
production facilities have the technological product and processing capabilities to supply a variety of parts and assemblies that span across our three primary product groups namely, engine,
transmission and fueling technologies. Additionally, specific marketing and distribution strategies are required in each geographic region. We currently operate in four geographic
segments  North America, Europe, Asia Pacific and South America  of which only two, North America and Europe, are separate
reportable operating segments.

Our
operating profits are not distributed equally across our plants and operating divisions due to a number of entity-specific factors, including facility size and location, types of
products produced, business maturity, capacity utilization and production efficiency. Consequently, a relatively small number of our plants and operating divisions may account for a significant share
of our operating profits or losses during any given period.

REPORTABLE OPERATING SEGMENTS

The sales figures presented in the following discussion have been prepared using our consolidated sales of $1,341.6 million in fiscal 2002
($1,202.1 million in fiscal 2001). Included in such consolidated sales are our sales of stamping, spinning, roll-forming, die casting, moulding, machining, welding and assembly
tools and dies, primarily to OEMs. Our tooling sales were $78.0 million in fiscal 2002, representing approximately 5.8% of our consolidated sales for such year ($75.5 million and
6.3%, respectively, for fiscal 2001). The operating income figures presented in the following discussion have been prepared using our consolidated income before income taxes of $128.1 million
in fiscal 2002 ($124.2 million in fiscal 2001).



During fiscal 2002, our North American operations supplied engine, transmission and fuel systems products to over 100 OEMs and their Tier 1 suppliers
around the world. These operations had, as at July 31, 2002, 3,400 employees located in 15 manufacturing facilities (11 in Ontario, two in Michigan and two in Nova Scotia), one advanced product
research centre and our corporate headquarters, both in Ontario, as well as sales (or sales representative) and engineering offices in Ontario and Michigan.

Excluding
intersegment sales of $14.8 million, our North American operations accounted for $1,044.0 million or 77.8% of our consolidated sales in fiscal 2002
($939.6 million or 78.2% in fiscal 2001). Of these fiscal 2002 sales, approximately 70.4% represented engine technologies products, 26.9% were transmission technologies products and 2.7% were
fuel technologies products. Our North American operations also contributed $116.1 million or 90.6% of our consolidated operating income in fiscal 2002 ($103.6 million or 83.4% in fiscal
2001).



During fiscal 2002, our European operations supplied engine, transmission and fuel systems products to over 75 OEMs and their Tier 1 suppliers around the
world. These operations had, as at July 31, 2002, 1,100 employees located in five manufacturing facilities (three in Germany and two in Austria), one advanced product research centre in
Austria, as well as sales (or sales representative) and engineering offices in Germany, Austria, England and Italy.

Excluding
intersegment sales of $2.4 million, our European operations accounted for $251.2 million or 18.7% of our consolidated sales in fiscal 2002 ($217.0 million
or 18.1% in fiscal 2001). Of these fiscal 2002 sales, approximately 66.3% represented engine technologies products, 25.2% were fuel technologies products and 8.5% were transmission technologies
products. Our European operations also contributed $10.5 million or 8.2% of our consolidated operating income in fiscal 2002 ($17.2 million or 13.8% in fiscal 2001).



During fiscal 2002, our "Other Automotive" operations supplied engine and transmission systems products to over 10 OEMs around the world. These operations
had, as at July 31, 2002, 200 employees located in two

11

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manufacturing facilities in South Korea, as well as sales (or sales representative) and engineering offices in South Korea, Japan and South America (Brazil).

Our
"Other Automotive" operations accounted for $46.4 million or 3.5% of our consolidated sales in fiscal 2002 ($45.6 million or 3.8% in fiscal 2001). Of these fiscal 2002
sales, approximately 64.9% represented engine technologies products and 35.1% were transmission technologies products. Our "Other Automotive" operations also contributed $1.5 million or 1.2% of
our consolidated operating income in fiscal 2002 ($3.4 million or 2.8% in fiscal 2001). As we did not commence manufacturing operations in South America (Brazil) until fiscal 2003, all sales to
customers in South America during fiscal 2002 (and prior years) were made from facilities in North America and Europe (and were reported as such).

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POWERTRAIN PRODUCT GROUPS

On a product basis, we operate in three powertrain product technologies groups, each of which is described below.



Engine technologies represent our largest and most mature product area, accounting for $920.3 million or 68.6% of our consolidated sales in fiscal 2002
($842.9 million or 70.1% in fiscal 2001). Our current engine technologies products include: the Litens Automotive accessory and timing belt drive tensioner products and systems and other highly
engineered drive system products (overrunning alternator decoupler assemblies, idler pulley assemblies, multi-function crankshaft pulley assemblies and tubular drive shaft assemblies); steel, phenolic
(plastic) and aluminum pulleys for virtually all engine applications (crankshafts, alternators, power steering pumps, air conditioning compressors and water pumps); torsional vibration dampers,
crankshaft isolators and other vibration attenuation devices; aluminum die cast and precision machined oil pans, cam covers and engine front cover plates; cooling system cross-over tubes,
injection moulded water outlet assemblies and thermostat housings; engine oil and water pump systems; and, most recently, engine balance shaft assemblies.



Transmission technologies products represent our fastest growing product area, accounting for $327.7 million or 24.4% of our consolidated sales in fiscal
2002 ($285.4 million or 23.8% in fiscal 2001). Applying various innovative manufacturing capabilities and metal processing technologies  including
die-forming, flow-forming, stamping and spinning, synchronous roll-forming, die-spline rolling, precision heavy stamping, fineblanking, die casting and
precision machining  often in combination, our transmission technologies business is based on the supply of unique components and assemblies that offer
performance, weight, cost and packaging advantages. Our current transmission technologies products include: flexplates (both one  and two-piece
designs); die-formed/flow-formed/cast and machined transmission clutch housings; stamped and assembled transmission oil pans; aluminum die cast and machined case extensions;
fineblanked products, including separator and backing plates; clutch hubs, pistons, damper plates, reaction shells, shift detent plates and other transmission components; torque converter damper plate
assemblies; transmission oil pumps; servo piston and
accumulator assemblies; and, most recently, various components for continuously variable transmission applications.



Fuel technologies products provide significant growth potential for us, accounting for $93.6 million or 7.0% of our consolidated sales in fiscal 2002
($73.8 million or 6.1% in fiscal 2001). Using metal processing and plastic injection moulding capabilities, including plastic welding, automated assembly, steel tube bending and
end-forming, hydro-forming and stainless steel plasma welding, we have established a reputation for innovative, lightweight and environmentally responsible vehicle refueling systems
product development and supply in both Europe and North America. Our current fuel technologies products include: traditional automotive caps (fuel, radiator, coolant reservoir and oil); fuel filler
inlet assemblies; vapour recovery valves/systems; filler and vent tubes; thin-walled, stainless steel "cap-to-tank" fuel filler modules (integrated refueling units
consisting of the fuel cap, filler inlet and filler pipe or tube, plus, in some applications, "on-board refueling vapour recovery" (ORVR) system technology); and, most recently, stainless
steel fuel tank assemblies.

TECHNOLOGY



We emphasize technological development and have a policy, embodied in our Corporate Constitution, to allocate a minimum of 7% of our Pre-Tax Profits
(as defined in our Corporate Constitution) for each year to research and development. See "ITEM 8. CORPORATE CONSTITUTION  REQUIRED
ALLOCATIONS  Research and Development". During fiscal 2002, we spent, net of amounts funded by governments or customers, approximately $18.2 million
(14.2% of Pre-Tax Profits) in connection with the

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development of new products and manufacturing processes, compared with $12.4 million (10.0% of Pre-Tax Profits) and $14.3 million (10.7% of Pre-Tax Profits)
during fiscal 2001 and fiscal 2000, respectively. We focus our research and development efforts both on enhancing existing technologies and on identifying technologies that we need to develop or
acquire in order to strengthen our core product offerings or otherwise implement our business strategy. In some cases, our research and development activities may be coordinated with those of Magna
and its affiliates.

Our
past development activities have resulted in a variety of new or improved components, assemblies, equipment, tools, operating processes and proprietary technologies. Examples of
proprietary technologies which have been developed by us and our manufacturing facilities include single-V and poly-V sheet metal pulleys, single belt accessory drive systems,
automatic belt tensioning devices, one-piece roll-formed flexplates,
precision die formed and flow formed clutch housings, crankpulley torque modulators, overrunning alternator decoupler assemblies, multi-function vibration control pulleys (torsional vibration
dampers), integrated engine front cover modules, engine balance shaft assemblies and stainless steel fuel tank assemblies, as well as related production processes and material specifications. Our
current modular product development efforts include camshaft phaser systems, complete air conditioning clutch systems, coolant management systems, variable flow engine water pumps, direct drive water
pumps, variable proportional valves, advanced fuel filler modules (including, capless or "comfort" refueling systems), and proprietary clutch technologies for starter-generator, transmission and
four-wheel/all-wheel drive system applications. Applied product and manufacturing process development is carried on at our various plants and operating divisions, including our
lead product group technology facilities (in North America). We have recently realigned our advanced product development resources at each of the engine, transmission and fuel technologies product
group levels to more fully leverage and access the knowledge and expertise of our employees. At all levels of our organization, we use CAD systems to develop products and to communicate with CAD
systems of OEMs. Our development resources also include noise/vibration/harshness testing capabilities, quality operating systems, automated manufacturing and assembly processes and finite
element analysis capabilities.



We own intellectual property rights such as patents, trademarks and copyrights, and use them in the course of our manufacturing business. We also license
technologies to third parties and are licensed to use technologies owned by third parties. While in the aggregate, rights which are licensed to or by us are considered important, we do not believe
that the loss or termination of any particular right would have a material adverse effect on our business.

ENGINEERING AND DESIGN

Our employees and sales representatives attempt to become involved as early as possible in the OEM's vehicle, engine and transmission development programs and to
develop components, modules or systems that either replace products currently produced by us or represent strategically important future product opportunities. It has been our experience that early
involvement by a supplier in the development cycle of a new vehicle model or new engine or transmission type often leads to orders for commercial production of the components, modules or systems for
such vehicles, engines or transmissions. Such involvement may also include the placement of our dedicated engineering representatives at a customer's technical development facilities.

It
has become increasingly common for an OEM to identify a supplier as the source for a component, module or system during the product design phase, provided the supplier meets various
price, service and quality standards. When a supplier is "pre-sourced" in this manner, the OEM and supplier cooperate on design, product and process engineering and establish the selling
price and other relevant considerations through a negotiation process.

We
recognize that in order to remain a successful "Tier 1" supplier, we must maintain our ability to provide complete engineering, development and testing capabilities. Accordingly, we
maintain an engineering and design staff which, as of July 31, 2002, exceeded[330]people, including a core group in our
plants and operating divisions,
our product technology groups and our sales and engineering offices. Our engineering staff use a variety of CAD/CAM systems and work closely with production personnel in providing engineering support
as

14

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required. Large projects sometimes require the supplementation of in-house engineering capabilities through the use of subcontractors and other "external" services.

PROGRAM MANAGEMENT

Our plants and operating divisions use program management systems in their manufacturing operations to manage product supply from initial concept through to
commercial production and continuous improvement. These program management systems generally involve cross-functional teams in each plant and operating division and incorporate policies and procedures
which meet or exceed the quality guidelines and requirements of ISO 9001, QS9000, TS 16949 and, commencing in fiscal 2002, ISO/TS 16949: 2002 (the automotive industry's new global quality systems
standard).

MANUFACTURING FACILITIES

As at July 31, 2002, we had 13 manufacturing facilities in Canada (11 in Ontario primarily clustered near Metropolitan Toronto and two in Nova Scotia), two
manufacturing facilities in Michigan, USA, three manufacturing facilities in Germany and two manufacturing facilities in each of Austria and South Korea. All of our manufacturing facilities aggregated
approximately 2.1 million square feet, of which, as at July 31, 2002, approximately 1.4 million square feet or approximately 67% were owned and the remainder leased from Magna and
various third parties. Such leases contain provisions that are customary for leases of similar types of facilities, run for various terms, require periodic renegotiation of rents based on prevailing
market conditions and, in many cases, contain renewal options.

Our
manufacturing facilities range in size from 40,500 to 247,300 square feet of floor space and generally maintain an in-house tooling capability with a staff of experienced
tool and die makers. As production has become more automated, the size and potential production volume of the typical plant has increased. Most of our existing manufacturing facilities can be adapted
to a variety of manufacturing processes without significant capital expenditures other than for new equipment.

We
currently operate many of our manufacturing facilities on a multi-shift basis. We believe that our existing facilities, and the facilities expected to be in operation during fiscal
2003, will be adequate to meet our anticipated production requirements for the forseeable future, although new business opportunities may require the acquisition or construction of additional
facilities or the expansion of existing facilities.

SALES AND MARKETING

Companies which supply directly to OEMs and which design, engineer, manufacture and conduct quality control testing are generally referred to in the
automotive industry as "Tier 1" suppliers. Tier 1 suppliers may be awarded longer term purchase orders by OEMs as a result of their involvement in the development of components with the
OEMs. Many parts are now being manufactured and assembled into components, assemblies, modules or systems by Tier 1 suppliers. OEMs purchase the components, assemblies, modules or
systems and then complete the assembly of the vehicle. Tier 1 suppliers generally have the capability to supply these components, assemblies, modules or systems to the OEMs on a
just-in-time basis which helps the OEMs reduce or otherwise manage inventory levels.

In
producing assemblies, modules or systems for OEMs, Tier 1 suppliers may rely on other suppliers for some components or parts. Depending on their level of sophistication in respect of
engineering, manufacturing and other requisite skills, these other suppliers are referred to as either "Tier 2" or "Tier 3" suppliers.

As
a Tier 1 supplier, we have historically sold our products and provided our support services directly to OEMs in North America and Europe (and continue to do so). In North
America, our primary customers are GM, Ford and DaimlerChrysler, and their respective operating divisions and subsidiaries. Sales to such customers represented approximately 38%, 15% and 5%,
respectively, of our consolidated sales in fiscal 2002 (36%, 19% and 5%, respectively, in fiscal 2001). In Europe, our primary customers are Volkswagen, DaimlerChrysler and GM, and their respective
operating divisions and subsidiaries. Sales to such European customers represented approximately 7%, 4% and 3%, respectively, of our consolidated sales in fiscal 2002 (8%, 3% and 3%, respectively, in
fiscal 2001).

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In
order to supply certain OEMs in Asia Pacific (including their North American subsidiaries and operating divisions) and in addition to maintaining our direct OEM relationships,
we provide sales and services to other Tier 1 suppliers to these OEMs both in North America and in other automotive markets. Accordingly, to the extent that we supply to such intermediary
suppliers, we consider ourself a "Tier 2" supplier to certain Asia Pacific OEMs. Although such Tier 2 relationships are relatively small, we believe that these relationships may increase and
may also lead to Tier 1 sourcing opportunities, to strategic alliances and to joint product development opportunities.

We
believe that significant business growth opportunities exist as a result of the continuing trend for OEMs to outsource a greater proportion of the supply of components,
assemblies, modules and systems within the powertrain product area, including larger and more complex products with increased content and features. Also, as the product life cycles of engines and
transmissions tend to be relatively longer than those of other automotive systems, in circumstances where we successfully obtain production contracts for new or redesigned product introductions from
our customers, we will have the opportunity to supply such products for longer life cycles. The production runs or life cycles for engine and transmission components of the type produced by us
typically continue for between five and ten years.

We
sell our products to OEMs located in Canada through our sales personnel in southern Ontario. Sales to OEMs located in the United States are coordinated through
independent sales representatives in Detroit.
Sales to OEMs in Asia Pacific and South America are coordinated by us principally in Canada but also through sales offices in South Korea and Brazil, and through representatives in Detroit and
Japan. Sales to OEMs located in Europe are made through or assisted by our sales offices located principally in Germany, Austria, England and Italy. The various internal operating divisions and
subsidiaries of the OEMs normally initiate many of their own purchasing commitments, and thus each OEM constitutes, in effect, several different purchasers. Our sales offices in Canada, South
Korea, Brazil, Germany, Austria, England and Italy and sales representatives in Detroit and Japan, work closely with operational group and plant managers in their sales efforts. Our products are
delivered to customers in Japan, South Korea, Taiwan, Singapore, Indonesia, Thailand, Philippines, Australia, Brazil, Argentina, Venezuela and South Africa in addition to OEMs in North America
and Europe.

We
typically receive a purchase order to produce a particular product for one or more model years. However, firm orders are usually created only when we receive releases under such
purchase orders, authorizing us to produce and deliver specific quantities of the product. Such releases are issued for planning, raw material acquisition and production purposes over varying periods
in advance of anticipated delivery dates. Once a purchase order is received by us from an OEM, the actual volume of components produced under the purchase order in any given fiscal year is dependent
upon the actual number of vehicles, engines or transmissions produced or planned to be produced by the OEM into in which the product is to be incorporated. Actual OEM production levels of a particular
vehicle model or engine or transmission type may vary significantly from OEM estimates and such production may be delayed or cancelled, often without any required compensation to us. Although
OEMs are not usually contractually committed to using a particular manufacturer to supply a product throughout the time such product is required by the OEM, it has been our experience that once
a commercial production order for a component, module or system for a particular vehicle model or engine or transmission type has been obtained by us, we will generally continue to produce that
product throughout the entire time such component, module or system is required by the OEM for that vehicle model or engine or transmission type.

In
certain circumstances, we may also obtain production programs on a "takeover" basis from time to time. These programs are typically already in production at OEM facilities or the
facilities of our competitors and, for various reasons, are resourced to us for production at our facilities.

We
coordinate marketing activities which relate to the automotive industry as a whole or which may involve particular OEMs with Magna, and enjoys the benefits of certain marketing
and other services from Magna under an Affiliation Agreement. See "ITEM 9. OTHER FACTORS  CONTROL OF TESMA AND RELATIONSHIP WITH
MAGNA  Affiliation Agreement".

COMPETITIVE CONDITIONS

We face numerous sources of competition, including from within our OEM customers, other direct competitors and product alternatives. The percentage of OEMs'
production requirements that are sourced

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internally by OEMs has been declining in the last decade due to the increased out-sourcing strategies of OEMs, including, more recently, in the areas of powertrain components which
have historically been retained under the direct control of OEMs.

Of
those products that are put out for bid, we face direct competition from a variety of suppliers in North America, Europe and, increasingly, other automotive markets that are
independent of OEMs, as well as numerous other suppliers in which one or more OEMs may have direct or indirect investments.

We
believe that there are a large number of independent suppliers that have the capability to produce some or all of the components, modules and systems that we currently produce. Also,
some of these competitors are larger and may have access to greater resources than we do, but we believe that none of them is dominant in the markets in which we operate. The basis for supplier
selection by OEMs is not determined solely by price, but also includes such elements as quality, service, historical performance, timelines of delivery, proprietary technologies, scope of
in-house capabilities, existing agreements, responsiveness and the supplier's overall relationship with the OEM, as well as being influenced by the degree of available and unutilized
capacity or resources in the manufacturing facilities of the OEM, collective bargaining agreement provisions, labour relations issues and other factors. The number of competitors that are solicited by
OEMs to bid on any individual product has, in certain circumstances, been significantly reduced, and we expect that further reductions will occur as a result of OEMs' stated intentions to deal
with fewer suppliers and award those suppliers longer-term contracts. OEMs expect their Tier 1 suppliers to have broad product design, engineering, manufacturing, testing and
assembly capabilities, as well as an ability to meet high quality control standards and to ship parts and assemblies on a "just-in-time" basis.

AVAILABILITY OF RAW MATERIALS

Our primary raw materials are steel and, to a significantly lesser extent, aluminum and thermoplastics, all of which are available from many different sources
worldwide in quantities sufficient for our needs. However, factors such as allocations, pricing, quality, timeliness of delivery, transportation and warehousing costs may affect the raw material
sourcing decisions made by us and our plants. When appropriate and available, long-term agreements may be negotiated with raw material suppliers to attempt to ensure continued availability
of certain raw materials on favourable terms. With respect to certain high quality grades of steel, there are a limited number of suppliers in Canada and the United States. Currently, most of our
Canadian requirements for steel are supplied by two large integrated Canadian steel producers, as well as Ontario-based steel service centres and warehouses. While supply agreements with such steel
manufacturers have helped to mitigate the effect of previous shortages of high grade steel, we are periodically subjected to increasing prices from our suppliers in order to acquire such steel. When
demand for these raw materials from domestic suppliers is particularly strong, we have encountered shortages and have purchased raw materials off-shore, principally from Europe. To date,
we have not experienced any significant difficulty in obtaining raw materials for our manufacturing operations and do not carry significant levels of either raw materials or finished product
inventories.

HUMAN RESOURCES

As at July 31, 2002, we employed approximately 4,700 people, including approximately 3,400 in North America, 1,100 in Europe and 200 in South Korea. We
place a high priority on maintaining good relations with our employees and believe that we have been successful in this regard. We are not a party to any collective bargaining agreement with respect
to our employees in North America. Certain of our European employees benefit from national industry-wide agreements relating to compensation and employment conditions and are members of
in-house employees' associations.



Since fiscal 1996, we have maintained an employee equity participation and profit sharing program (the "Tesma EPSP") to foster participation by qualifying
employees in our profits and share ownership. Pursuant to the our Corporate Constitution, 10% of our Employee Pre-Tax Profits Before Profit Sharing (as defined in the Corporate
Constitution) is required to be allocated each year to the Tesma EPSP, consisting of a Canadian deferred profit sharing plan and an American deferred profit sharing plan (collectively, the "Tesma
DPSP") and

17

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a cash distribution to our eligible employees. See "ITEM 8 CORPORATE CONSTITUTION  REQUIRED ALLOCATIONS  Tesma EPSP". All
eligible North American employees, other than employees whose compensation includes direct profit participation or who otherwise fail to meet the qualification requirements, are participants in the
Tesma DPSP, which invests primarily in our Class A Subordinate Voting Shares. On retirement, and in certain other limited situations, participating employees in the Tesma DPSP generally receive
a cash payout of their respective DPSP units, the value of which is related, in large part, to the then market value of the Class A Subordinate Voting Shares held by the Tesma DPSP.

As
at October 28, 2002, 1,378,567 of our Class A Subordinate Voting Shares, representing approximately 7.6% of the class, were held by the Tesma DPSP. Through his position
as our President, Mr. Anthony E. Dobranowski retains the right to direct the trustees of the Tesma DPSP in regards to voting and disposing of such shares. The trustees, absent any direction
from Mr. Dobranowski, have the right to vote such shares. Mr. Dobranowski is not a beneficiary under the Tesma DPSP.

We
also provide a Canadian group registered retirement savings plan and a 401K Plan in the United States, under which contributions made by qualifying employees through payroll
deductions are partially matched by us.

Prior
to fiscal 1996, our qualifying employees participated in a Magna deferred profit sharing plan substantially similar to the Tesma DPSP. These employees are entitled to continue in
the Magna plan as inactive participants to the extent that their pre-fiscal 1996 units remain in the plan.



We believe that direct profit participation assists in motivating our key employees. Accordingly, employees who have senior operational or corporate
responsibilities receive remuneration consisting of a base salary and an incentive bonus generally tied to the financial performance of their plants in the case of plant management, their product
technologies groups in the case of group management, and the company as a whole in the case of certain senior corporate officers. Approximately 45 employees, including members of corporate management,
were remunerated in this manner during fiscal 2002. These individuals do not
participate in the Tesma EPSP or other related programs (including the Canadian group registered retirement savings plan or the 401K Plan in the United States).

Our
Corporate Constitution provides that aggregate incentive bonuses paid or payable to Corporate Management (as defined in the Corporate Constitution) in respect of any fiscal year
shall not exceed 6% of our Pre-Tax Profits Before Profit Sharing (also as defined in the Corporate Constitution) for such year.



We have adopted an Employee's Charter of Rights (the "Employee's Charter") which formalizes our commitment to the fair treatment of employees, safe and healthful
workplaces, competitive wages and benefits, employee equity participation and profit sharing, and open communications. We believe that providing employees with a safe and pleasant working environment
is an important factor in maintaining labour productivity and goodwill in order to produce quality products.

In
addition to compliance with the Employee's Charter, each of our plants conduct monthly employee meetings, small group management meetings and other programs, including employee
opinion surveys, all intended to maintain open communications with all employees. Individual employee complaints and most discipline matters are dealt with internally through various means, including,
at many plants, the use of fairness committees. Where such committees are established, a majority of the membership consists of plant employees.

ENVIRONMENTAL MATTERS

We are subject to a wide range of environmental laws and regulations imposed by governmental authorities on our production operations in relation to air
emissions, soil and ground water quality, wastewater discharges, waste management and the storage of hazardous substances. We have adopted a health, safety and environmental policy which commits us to
prevent pollution, reduce the impact of our operations on the environment and provide safe and healthful working conditions through the application of appropriate measures, all in the context of a
goal of continual improvement in health, safety and environmental matters. All

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but two of our manufacturing divisions have obtained ISO 14001 (environmental management system standards) certification, and these two divisions are scheduled to proceed towards registration status
during fiscal 2003.

We
believe that our operations do not involve activities likely to create significant environmental risks. All of our operations meet, in all material respects, applicable governmental
standards, including those related to waste handling and emissions. We have made, and will continue to make, significant expenditures in respect of environmental matters. To date, the costs incurred
in complying with environmental laws and regulations have not had a material adverse effect on our operations or financial condition. However, changes in these
laws and regulations are ongoing and may make environmental compliance, such as emissions control, site clean-ups and waste disposal, increasingly expensive. We cannot predict the future
costs which may be incurred to meet environmental obligations.

SEASONALITY

Historically, North American vehicle production is generally lower during the first and last months of our fiscal year due to summer shutdowns and/or model
changeovers by OEMs. Since our working capital requirements are dependent upon industry production volumes, they are typically at their lowest levels around the end of each fiscal year.
Additionally, North American and European vehicle production volumes are usually lower during the second quarter of our fiscal year because of the Christmas and New Year's holiday season.

LITIGATION

From time to time, various claims incidental to our business are made against us. None of these claims has had, and we believe that none of the current claims
will have, a materially adverse effect upon our operations or financial condition.

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ITEM 4. SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following selected income statement and balance sheet data have been derived from, and should be read in conjunction with, our July 31, 2002 audited
consolidated financial statements and the notes thereto (the "Consolidated Financial Statements") which are contained in our fiscal 2002 Annual Report to Shareholders (our "2002 Annual Report").

|                                                                                |         | Year ended July 31,
|------------------------------------------------------------------------------- | ------- | -------------------
|
|
|
|Income Statement Data (1)(2)(3)                                                 |         |                    
|Sales                                                                           |         | $                  
|Cost of goods sold                                                              |         |                    
|Depreciation and amortization                                                   |         |                    
|Interest, net                                                                   |         |                    
|Income before income taxes                                                      |         |                    
|Net income                                                                      |         |                    
|Net income attributable to Class A Subordinate Voting Shares and Class B Shares |         | $                  
|Earnings per Class A Subordinate Voting Share or Class B Share:                 |         |                    
|                                                                                | Basic   |                    
|                                                                                | Diluted |                    

|                                                       |  | July 31,
|------------------------------------------------------ |  | --------
|
|
|Balance Sheet Data (1)(3)                              |  |         
|Working capital (4)                                    |  | $       
|Total assets                                           |  | $       
|Cash                                                   |  | $       
|Short-term indebtedness (5)                            |  | $       
|Long-term debt (excluding portion due within one year) |  | $       
|Shareholders' equity                                   |  | $       

---

Notes:

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|                                                               |         | Year ended July 31,
|-------------------------------------------------------------- | ------- | -------------------
|
|
|Net income                                                     |         | $                  
|Earnings per Class A Subordinate Voting Share or Class B Share |         |                    
|                                                               | Basic   |                    
|                                                               | Diluted |                    



|                     |  | July 31,
|-------------------- |  | --------
|
|
|Shareholders' equity |  | $       



SUPPLEMENTARY QUARTERLY DATA  (Canadian dollars in thousands, except per share information)  (unaudited)

|                                                                                |         | Three months ended
|------------------------------------------------------------------------------- | ------- | ------------------
|
|Sales                                                                           |         | $                 
|Income before income taxes                                                      |         |                   
|Net income attributable to Class A Subordinate Voting Shares and Class B Shares |         |                   
|Earnings per Class A Subordinate Voting Share or Class B Share:                 |         |                   
|                                                                                | Basic   |                   
|                                                                                | Diluted |                   

|                                                                                |         | Three months ended
|------------------------------------------------------------------------------- | ------- | ------------------
|
|Sales                                                                           |         | $                 
|Income before income taxes                                                      |         |                   
|Net income attributable to Class A Subordinate Voting Shares and Class B Shares |         |                   
|Earnings per Class A Subordinate Voting Share or Class B Share:                 |         |                   
|                                                                                | Basic   |                   
|                                                                                | Diluted |                   

DIVIDENDS

Holders of our Class A Subordinate Voting Shares and Class B Shares are entitled to receive such dividends as may be declared by our Board on a pro ratabasis (subject to the preferential rights attaching to any other

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shares ranking in priority to our Class A Subordinate Shares and Class B Shares). The following table sets forth the dividends per share we have paid on the outstanding Class A
Subordinate Voting Shares and Class B Shares in respect of the periods indicated.

Three Months Ended

Per share amountJuly 31, 2002

$0.16April 30, 2002

$0.16January 31, 2002

$0.16October 31, 2001

$0.16July 31, 2001

$0.16April 30, 2001

$0.16January 31, 2001

$0.16October 31, 2000

$0.16July 31, 2000

$0.16April 30, 2000

$0.16January 31, 2000

$0.16October 31, 1999

$0.125


On
December 4, 2002, our Board declared, in respect of the fiscal quarter ended October 31, 2002, a dividend of $0.16 per share on our outstanding Class A
Subordinate Voting Shares and Class B Shares, payable on January 15, 2003 to shareholders of record on December 31, 2002.

Subject
to applicable law, the payment of future dividends on our Class A Subordinate Voting Shares and Class B Shares, and the amounts thereof, will be determined
by our Board in accordance with our restated articles of incorporation including the Corporate Constitution set out therein (see "ITEM 8. CORPORATE
CONSTITUTION  REQUIRED ALLOCATIONS  Dividends").

Dividends
are declared and paid in Canadian dollars, except that shareholders having addresses of record in the United States are paid the equivalent in U.S. dollars (based on the
Bank of Canada noon U.S. dollar conversion rate on the dividend record date). All other non-Canadian resident shareholders may elect to receive dividends in U.S. or Canadian
dollars. In all cases, the applicable Canadian withholding tax is deducted.

ITEM 5. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Reference is made to the information set forth under "Management's Discussion & Analysis" contained on pages 25 through 32 of our 2002 Annual
Report, which is incorporated by reference into this Annual Information Form.

ITEM 6. MARKET FOR SECURITIES

Our Class A Subordinate Voting Shares are listed and posted for trading on The Toronto Stock Exchange under the symbol TSM.A and The Nasdaq Stock Market
under the symbol TSMA. Our Class B Shares do not publicly trade.

The
holders of our Class A Subordinate Voting Shares are entitled to one vote per share. The holders of our Class B Shares are entitled to 10 votes per share.

Under
applicable Canadian law, an offer to purchase Class B Shares would not necessarily result in an offer to purchase our Class A Subordinate Voting Shares. Magna
(including its intermediary holding corporation, 1128969 Ontario Inc. ("1128969")), as the direct and indirect holder of all our issued and outstanding Class B Shares, entered into an
agreement (the "Trust Agreement") on July 19, 1995 with us and the Montreal Trust Company of Canada (now Computershare Trust Company of Canada) (the "Trustee") for the purpose of ensuring that
the holders of our Class A Subordinate Voting Shares will not be deprived of any rights under applicable take-over bid legislation to which they would have been entitled in the
event of a take-over bid (which

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term includes, in certain circumstances, a private offer to purchase) if our Class B Shares and the Class A Subordinate Voting Shares were a single class of shares.

Under
the Trust Agreement, Magna (including 1128969) has agreed not to sell any Class B Shares, directly or indirectly, pursuant to a take-over bid, as defined under
theSecurities Act(Ontario), in circumstances in which such legislation would require the same offer or a follow-up offer on the same terms
to be made to the holders of our Class A Subordinate Voting Shares if the sale had been a sale of Class A Subordinate Voting Shares. These circumstances include the sale of
Class B Shares at a price per share in excess of 115% of the market price of our Class A Subordinate Voting Shares as determined under such legislation. This prohibition does not apply
if: (i) such sale is made pursuant to an offer to purchase only a limited number of Class B Shares made to all holders of our Class B Shares and an identical offer in all material
respects is made concurrently to purchase our Class A Subordinate Voting Shares, which identical offer has no additional condition attached other than the right not to take-up and
pay for shares tendered if no shares are purchased pursuant to the offer for our Class B Shares, or (ii) there is a concurrent unconditional offer to purchase all Class A
Subordinate Voting Shares at a price per share at least as high as the highest price per share paid pursuant to the take-over bid for our Class B Shares.

The
Trust Agreement contains provisions for the authorization of action by the Trustee to enforce the relevant rights of the holders of our Class A Subordinate Voting Shares as
beneficiaries of the trust. The obligation of the Trustee to take such action is conditional on us or the holders of our Class A Subordinate Voting Shares providing such funds and indemnity as
the Trustee may require. No holder of our Class A Subordinate Voting Shares has the right, other than through the Trust Agreement, to institute any action or proceeding or to exercise any other
remedy to enforce any rights arising under the Trust Agreement unless the Trustee fails to act on a request authorized by the holders of not less than 10% of our outstanding Class A Subordinate
Voting Shares after provision of reasonable funds and indemnity to the Trustee.

The
Trust Agreement provides that Magna (including 1128969) will not dispose of any Class B Shares, directly or indirectly, unless the disposition is conditional upon the person
or company acquiring such shares becoming a party to the Trust Agreement. Conversions of Class B Shares into Class A Subordinate Voting Shares and the subsequent sale of the
Class A Subordinate Voting Shares resulting from such conversions are excluded from this prohibition.

The
Trust Agreement provides that it may not be amended and no material provision thereof may be waived, except with the approval of at least two-thirds of the votes cast by
the holders of our Class A Subordinate Voting Shares present or represented at a meeting duly called for the purpose of considering such amendment or waiver. The two-thirds majority
must include a simple majority of the votes cast by the holders of our Class A Subordinate Voting Shares excluding any of our principal shareholders (see "ITEM 10. ADDITIONAL INFORMATION"),
their affiliates and any persons who have an agreement to purchase Class B Shares on terms which would constitute a sale for the purposes of the Trust Agreement not otherwise permitted thereby
prior to giving effect to the amendment or waiver.

The
Trust Agreement does not prevent any holder of our Class B Shares from:



No
provision of the Trust Agreement limits the rights of any holder of our Class A Subordinate Voting Shares under applicable securities legislation.

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ITEM 7. DIRECTORS AND OFFICERS

DIRECTORS

As at December 5, 2002, our Board consists of the following persons:

|Name and Municipality of Residence           |  | Director Since    |  | Principal Occupation                                                                                                                               
|-------------------------------------------- |  | ----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|MANFRED GINGLKettleby, Ontario               |  | April 27, 1995    |  | Vice-Chairman and Chief Executive Officer, Tesma International Inc. and Executive Vice-Chairman, Magna International Inc. (auto parts manufacturer)
|OSCAR B. MARX, IIILaguna Beach, California   |  | July 31, 1995     |  | Vice-President, TMW Enterprises Inc. (private investment firm)                                                                                     
|HON. DAVID R. PETERSON, P.C.Toronto, Ontario |  | February 13, 2002 |  | Chairman, Cassels Brock & Blackwell LLP (Barristers and Solicitors)                                                                                
|BELINDA STRONACHAurora, Ontario              |  | December 12, 2001 |  | President and Chief Executive Officer, Magna International Inc.                                                                                    
|JUDSON D. WHITESIDEThornhill, Ontario        |  | July 31, 1995     |  | Chairman and Chief Executive Officer, Miller Thomson LLP (Barristers and Solicitors)                                                               
|SIEGFRIED WOLFWeikersdorf, Austria           |  | June 6, 2002      |  | Executive Vice-Chairman, Magna International Inc.                                                                                                  
|HON. M. DOUGLAS YOUNG, P.C.Ottawa, Ontario   |  | July 31, 2002     |  | Chairman,
Summa Strategies Canada Inc. (government relations agency)                                                                               

All
of directors were elected to their present terms of office by our shareholders at the annual meeting held on December 5, 2002, and were originally elected or appointed as
directors on the dates indicated in the above table. Each director will hold office until the close of the next annual meeting of our shareholders or until his or her earlier resignation or removal in
accordance with applicable law and our by-laws. All directors have held the principal occupations indicated in the above table (or another position with the same employer) for the past
five years. Ms. Stronach and Messrs. Gingl and Wolf are also directors of Magna.

Our
Board has established two standing committees, the Audit Committee and the Human Resources and Compensation Committee, and prescribed the responsibilities and mandates of such
committees. Through December 4, 2002, Mr. Whiteside served as the Chairman of the Audit Committee and Messrs. Marx and Peterson served as members of the Audit Committee and,
Ms. Stronach served as Chairman of the Human Resources and Compensation Committee and Messrs. Peterson and Whiteside served as members of the Human Resources and Compensation Committee.
Neither the Audit Committee nor the Human Resources and Compensation Committee were reconstituted following our annual meeting of shareholders held on December 5, 2002, however, this is
anticipated in respect of each Committee in the near future.

Our
failure to meet the requirements of the Corporate Constitution relating to the payment of Required Dividends (as defined in our Corporate Constitution) or the minimum return on
stated capital required by the terms of our Class A Subordinate Voting Shares will entitle the holders of the Class A Subordinate Voting Shares, as a class, to certain rights to elect
directors, the exercise of which could result in changes to the composition of our Board.

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OFFICERS

As at December 5, 2002, the following persons are our corporate officers:

|Name and Municipality of Residence         |  | Principal Occupation                                                                                                                                                     
|------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|BELINDA STRONACH(1)
Aurora, Ontario        |  | Chairman of the Board of Directors (since October 2002) and President (since February 2002) and Chief Executive Officer (since February 2001) of Magna International Inc.
|MANFRED GINGLKettleby, Ontario             |  | Vice-Chairman (since May 2002) and Chief Executive Officer (since February 1995) and Executive Vice-Chairman of Magna International Inc. (since May 2002)                
|ANTHONY E. DOBRANOWSKIStouffville, Ontario |  | President (since May 2002) and Chief Financial Officer (since April 1995)                                                                                                
|PAUL MANNERSPalgrave, Ontario              |  | Executive Vice-President and Chief Operating Officer (since May
2002)                                                                                                    
|PASQUALE CERULLO(2)
Pickney, Michigan      |  | Executive Vice-President, Sales, Marketing and Corporate Development (since March 2002)                                                                                  
|STEFAN T. PRONIUKKleinburg, Ontario        |  | Vice-President, Secretary and General Counsel (since April 1995)                                                                                                         
|JAMES L. MOULDSAurora, Ontario             |  | Vice-President, Finance (since September 1999) and Treasurer (since September 2002)                                                                                      
|THOMAS MORENewmarket, Ontario              |  | Controller (since September 2002)                                                                                                                                        

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All corporate officers, with the exception of Mr. More, have held the principal occupations indicated in the above table (or another
position with us) for the past five years. Mr. More has been our Controller since September 2002. From February 2001 to September 2002, Mr. More was our Assistant
Controller. Prior to that, Mr. More was the Controller at two privately-held non-automotive companies since February 1999. Prior to that, Mr. More, a
Chartered Accountant, worked in various public accounting and auditing capacities at Ernst & Young LLP from September 1994 to February 1999.

Magna
owns, directly and indirectly, 14,223,900 of our Class B Shares, representing 100% of the class. The Stronach Trust controls Magna through its right to direct the votes
attached to a sufficient number of class B shares of Magna which carry a majority of the votes attaching to all outstanding voting shares of Magna. Ms. Stronach, together with three
other members of her family, are the trustees of the Stronach Trust. Ms. Stronach is also a member of the class of potential beneficiaries of the Stronach Trust.

Our
directors and corporate officers as a group (13 persons) owned beneficially or exercised control or direction over of our 1,728,067 Class A Subordinate Voting Shares
(representing approximately 9.6% of the class) and 14,223,900 of our Class B Shares (representing 100% of the class) as of October 28, 2002.

Excluding
the shares that Mr. Dobranowski, as our President, may exercise control or direction over through the Tesma DPSP and excluding the shares that Ms. Stronach may be
deemed to own beneficially or exercise control or direction over as a result of being a trustee of the Stronach Trust, our directors and corporate officers as a group (13 persons) owned beneficially
or exercised control or direction over 349,500 of our Class A Subordinate Voting Shares, or approximately 1.9% of the class, and no Class B shares, as of October 28, 2002.

For
biographical information relating to our directors and corporate officers, please visit our website at www.tesma.com.

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ITEM 8. CORPORATE CONSTITUTION

We have adopted and practiced the organizational and operating policies and principles utilized by Magna for many years, certain of which have been embodied in
our Corporate Constitution which forms a part of our restated articles of incorporation. The following discussion summarizes the principal features of our Corporate Constitution, which features
cannot be amended or varied without the prior approval of the holders of our Class A Subordinate Voting Shares and Class B Shares, each voting as a separate class. Where our Corporate
Constitution (and any other provisions of our restated articles of incorporation) requires the approval of the holders of our Class A Subordinate Voting Shares, voting as a separate class, such
approval must be by a majority of the votes cast at a meeting of such holders, other than the votes attaching to any Class A Subordinate Voting Shares beneficially owned (directly or
indirectly) by Magna or any of its affiliates, or by any person who, by agreement, is acting jointly with Magna or such affiliates, or over which Magna, any of its affiliates or any such person
exercises direct or indirect control or direction. These limitations do not apply to any other holder of our Class A Subordinate Voting Shares.

The
terms "Pre-Tax Profits", "Employee Pre-Tax Profits Before Profit Sharing", "After-Tax Profits", "Unrelated Business", "Available Equity", "Social
Objectives", "Pre-Tax Profits Before Profit Sharing", "Corporate Management" and "Executive Management" as used in the following discussion have the respective meanings prescribed in our
Corporate Constitution.

BOARD OF DIRECTORS

Our Corporate Constitution provides that a majority of the members of our Board shall be individuals who are not our officers or employees, nor persons related to
such persons, and that a minimum of two directors shall be individuals who are not our officers or employees or officers or employees of any of our affiliates (including Magna), or directors of any of
our affiliates (including Magna), nor persons related to any such officers, employees or directors.

AFFILIATION AGREEMENT

Our Corporate Constitution provides that the Affiliation Agreement between us and Magna shall not be amended to increase the annual affiliation fee payable to
Magna. See "ITEM 9. OTHER FACTORS  CONTROL OF TESMA AND RELATIONSHIP WITH MAGNA  Affiliation Agreement".

REQUIRED ALLOCATIONS

Our Corporate Constitution requires that a significant portion of our Pre-Tax Profits be distributed or used for certain purposes, as described below.



Our Corporate Constitution requires that 10% of our Employee Pre-Tax Profits Before Profit Sharing for each fiscal year be allocated to the Tesma EPSP
and/or otherwise be distributed to our employees who do not participate in an employee equity participation and profit sharing program and who do not receive management incentive bonuses, during such
year or in the immediately following fiscal year. See ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS  HUMAN
RESOURCES  Employee Equity Participation and Profit Sharing Program".



The Corporate Constitution provides that holders of our Class A Subordinate Voting Shares and Class B Shares are be entitled to receive, and we
shall pay, as and when declared by our Board out of funds properly applicable for the payment of dividends, non-cumulative dividends in respect of each fiscal year so that the aggregate of
the dividends paid or payable in respect of such year is at least equal to the greater of: (i) 10% of our After-Tax Profits for such fiscal year (after providing for any preference
or preferred share dividends, if any); and (ii) an amount which, when added to the aggregate of the dividends paid on our Class A Subordinate Voting Shares and Class B Shares in
respect of the two immediately preceding fiscal years, equals 20% of the aggregate

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of our After-Tax Profits (after providing for any preference or preferred share dividends, if any) for such fiscal year and the two preceding fiscal years. A dividend is deemed to be paid
in respect of the fiscal quarter immediately preceding the fiscal quarter in which such dividend is declared. However, our Board may specify that any dividend be deemed to be paid in respect of the
fiscal quarter in which it is declared or in respect of any future fiscal quarter. See "ITEM 5. SELECTED CONSOLIDATED FINANCIAL INFORMATION  DIVIDENDS".



Our Corporate Constitution requires that a minimum of 7% of our Pre-Tax Profits be allocated to research and development during such fiscal year or
during the immediately following fiscal year. See "ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS  TECHNOLOGY  Research and
Development".

AUTHORIZED SHARE CAPITAL

Our Corporate Constitution prohibits any increase in the maximum number of authorized shares of any class and the creation of any new class or series of shares
having voting rights (other than on default of payment of dividends) or having rights to participate in our profits (other than shares convertible into existing classes
of shares or a class or series of shares having fixed dividends or dividends determined without regard to profits).

BUSINESS INVESTMENTS

Our Corporate Constitution prohibits us from making an investment (whether directly or indirectly, by means of certain loans or guarantees or otherwise) in any
Unrelated Business, where such investment, together with the aggregate of all other investments in Unrelated Businesses on the date of investment, exceeds 20% of our Available Equity at the end of the
fiscal quarter immediately preceding the date of the investment.

SOCIAL OBJECTIVES

Pursuant to our Corporate Constitution, a maximum of 2% of our Pre-Tax Profits shall be allocated to the promotion of Social Objectives during such
fiscal year or the immediately following fiscal year.

Under
the terms of a Social Fee Agreement between us and Magna, we pay Magna a fee based on 1.5% of our Pre-Tax Profits as a contribution to social and charitable programs
coordinated by Magna on behalf of itself and its affiliates, including us. See "ITEM 9. OTHER FACTORS  CONTROL OF TESMA AND RELATIONSHIP WITH MAGNA".

INCENTIVE BONUSES

Our Corporate Constitution provides that the incentive bonuses paid or payable to Corporate Management in respect of each fiscal year shall not, in the aggregate,
exceed 6% of our Pre-Tax Profits Before Profit Sharing for such fiscal year. Executive Management, with the approval of our Board, has the right to allocate the amount to be paid to
individuals within Corporate Management as well as to determine the timing and manner (whether by cash, shares or otherwise) of payment. See "ITEM 3. NARRATIVE DESCRIPTION OF THE
BUSINESS  HUMAN RESOURCES  Management Incentive Compensation".

ITEM 9. OTHER FACTORS

The automotive industry in which we compete and the powertrain components supply business we conduct are subject to a number of risks, assumptions, uncertainties
and other factors. In order to better appreciate these risks, assumptions, uncertainties and other factors, the following discussion should be considered by persons reading this Annual Information
Form (in addition to the other information contained in this Annual Information Form).

AUTOMOTIVE INDUSTRY

Our automotive operations are directly related to levels of global automotive production. The automotive industry is cyclical and sensitive to changes in certain
economic conditions, including the level of real interest

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rates and consumer demand. OEMs are susceptible to significant declines in production volumes as a result of rising interest rates, general economic downturns, weakened consumer and business
confidence, rising personal debt levels, higher vehicle prices and operating costs, industry specific issues (including the effects of off-lease "nearly new" used vehicles and the
acceleration or elimination of purchase or leasing incentives), rising fuel prices or general fuel unavailability, legislative changes and other government intervention in the marketplace, emissions
and other environmental concerns, fuel economy and safety issues, labour disruptions, trade and/or tariff issues or other factors.

A
recession in North America or an economic slowdown in Europe or Asia could significantly affect consumer demand and confidence and negatively affect vehicle sales and production
levels. It is impossible for us to predict the existence, length or severity of any economic downturn or recession. However, any significant and prolonged decline in automotive production in either of
our principal North American or European markets will significantly lower, and could substantially eliminate, our profits.

Our
reliance on our OEM customers makes us susceptible to other risks generally applicable to industry participants, including the extent of OEM outsourcing. The extent of OEM
outsourcing is dependent on a number of factors, including the cost, quality and timeliness of external production relative to in-house production by OEMs, relative technological
capability, the degree of availability and unutilized capacity or resources at OEM manufacturing facilities, OEM collective bargaining agreement provisions, OEM labour relations issues and other
factors. Any significant decline in OEM production volumes or increase in insourcing of any major production contracts as a result of any of the factors described above could have an adverse effect on
us.

Additionally,
alternative materials (such as aluminum and plastics) have the potential to replace automotive parts which have been or are currently made of steel, due, in part, to an
attempt by OEMs to reduce the weight of vehicles. Any substantial increase in the use of such alternative materials would likely have an adverse effect on us, as our business is primarily
focused on the manufacture of steel automotive components, assemblies, modules and systems. While we manufacture a number of products using aluminum die and gravity mould casting technologies,
competitors with similar capabilities in the industry may be larger and/or have greater resources than we do. We are unable to predict future trends relating to the use of such alternative materials.
See "ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS  OPERATIONS OVERVIEW".

PRICING CONCESSIONS AND COST ABSORPTIONS

We have in the past entered into, and continue to enter into, long-term supply arrangements with OEMs which provide, among other things, for
pricing concessions over the supply term. These concessions
have, to date, been largely offset by cost reductions arising principally from process and product improvements and price reductions from our suppliers. However, we are currently experiencing
increasing pressure for pricing concessions from certain of our OEM customers which we may not be able to offset by such traditional cost reduction methods, even though these price concessions have
not been material to date. In addition, our customers are expected to use various electronic commerce initiatives such as Covisint, an e-business exchange providing product development,
procurement and supply chain tools to the automotive industry, as well as Internet-based auctions, in order to further reduce their costs. These e-commerce initiatives are still in the
early stages of implementation and their full effect on the prices of the products and services we sell to OEMs and/or on the costs of the products and services we obtain from our suppliers is
uncertain. While we believe that we are and will remain competitive, there can be no assurance that we will continue to remain successful in offsetting pricing concessions agreed to from time to time
with OEMs. To the extent that such pricing concessions are not offset through cost reductions, our profit margins would be adversely affected.

We
are also under increasing pressure to absorb or defer the recovery of engineering costs related to product design, tooling costs and other items previously paid for directly by our
OEM customers, and may not be able to pass on fully to such customers price increases from our own suppliers. In particular, some OEMs periodically request that suppliers pay for engineering,
design and/or tooling costs that are incurred up to the start of production and recover these costs through increases to the unit price of the particular products supplied. If estimated production
volumes are not achieved, the engineering, design and/or tooling costs incurred by us may not be fully recovered. Similarly, future pricing pressures from our customers could also

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reduce the amount of the amortized costs otherwise recoverable in the unit price of our products. Although these factors have not been material to us to date, they could have an adverse effect on our
future profitability.

PRODUCT WARRANTY, RECALL AND PRODUCT LIABILITY COSTS

OEMs are increasingly requesting their suppliers to bear the costs of the repair and replacement of defective products which are either covered under the
particular OEM's warranty programs or under vehicle recall campaigns and which were improperly designed, manufactured or assembled by their suppliers. To the extent not covered by available recall
insurance, the obligation to repair or replace such parts could have an 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, and may experience material product liability losses and/or significant costs to defend such
claims.

We
currently have product liability coverage under Magna's insurance policies which will continue until August 2003, subject to renewal on an annual basis. In addition, our
European operations maintain product recall insurance, which is required by law in certain jurisdictions. However, no assurance can be given that our insurance coverage will be adequate for any
liabilities we may incur. Furthermore, we cannot predict that our insurance coverage will continue to be available to us at premiums and on other terms acceptable to us. A successful claim brought
against us in excess of available insurance coverage limits could have a material adverse effect on our operations and financial condition.

DEPENDENCE ON NEW AND REDESIGNED PRODUCT INTRODUCTIONS  BY CUSTOMERS AND TECHNOLOGY IMPROVEMENTS

We principally compete for new business when our customers begin the design and development of new products, as well as when such customers commence the redesign
of their existing products. New product development by our customers generally begins two to five years prior to full-scale production, and product redesign initiatives by customers
typically involve long lead times as well. The product life cycle of engines and transmissions is relatively longer than other automotive systems. To the extent that we are unable to obtain
significant new business in the future, the relatively longer product life cycle of engine and transmission systems (which are the primary focus of our operations) will cause a greater negative impact
on our financial condition than would be the case for businesses that concentrate on other automotive systems.

Our
ability to continue to meet customer specifications in respect of performance, cost, quality, delivery and service will be increasingly dependent upon our ability to continuously
improve and sustain the competitive technological advantages that we believe we currently enjoy. It is our strategy to continue to develop and expand our product and processing capabilities, such that
maintain these competitive advantages. These focused efforts may require additional expenditures and investment in the areas of research and development, engineering and design, manufacturing, product
testing and information systems. There can be no assurance that we will be successful in these efforts or that we will have the resources available to meet these continuing challenges. Our failure to
improve continuously and to sustain our competitive technological advantages could have an adverse effect on our financial condition.

In
addition, changes in customer needs, competitive technologies or regulatory or industry requirements may render some of our products obsolete or non-compliant. Our ability
to anticipate or respond to changes in such customer, technology, regulatory or industry requirements and to successfully develop and introduce new and enhanced products on a cost effective and timely
basis will be a significant factor in our ability to grow and to remain competitive. We may not be able to anticipate or achieve the technological advances necessary for, or to comply with regulatory
or industry requirements in a manner which will allow, us to remain competitive and prevent our products from becoming obsolete or non-compliant. We are also subject to the risks generally
associated with new product introductions and applications, including lack of market acceptance, delays in product development and failure of products to operate properly. Any of these factors could
have an adverse effect on our business prospects and financial condition.

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COMPETITION

We face numerous sources of competition, including our OEM customers and their related manufacturing organizations, other OEM suppliers and manufacturers of
product alternatives. Some of our competitors are larger and may have access to greater resources than we do, but we believe that no competitor is dominant in the product lines in which we compete.
However, there can be no assurance that we will be able to continue to compete successfully with our existing competitors or that we will be able to compete successfully with new competitors. See
"ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS  COMPETITIVE CONDITIONS".

RELIANCE ON MAJOR CUSTOMERS

Approximately 76% of our fiscal 2002 consolidated sales (same percentage in fiscal 2001) were to four OEMs and their respective operating divisions and
subsidiaries. Accordingly, the loss of GM, Ford, DaimlerChrysler or Volkswagen, or any other significant OEM customer, as our customer, or the delay or cancellation of any orders from, or design,
development, engineering or production projects at, any such customers could have an adverse effect on our financial condition.

PRODUCTION VOLUMES

Our future business will involve the design and supply of components, assemblies, modules and systems currently in production, as well as contracts awarded or to
be awarded to us for production to commence at future dates. Contract volumes for components not yet in production are based on customer estimates of their own future production levels by vehicle body
or engine or transmission type, and actual production volumes may vary significantly from such estimates or be delayed or canceled, often without any required compensation to us. We do not typically
rely solely on customer estimates, but re-evaluate such estimates based on our own assessment of future production levels by vehicle body or engine or transmission type. For components,
assemblies, modules and systems currently under production, we are typically not in a position to request price increases if actual production volumes are less than the production estimates used
during the quotation stage.

Consistent
with usual industry practice, we consider awarded business as existing for the life of the particular vehicle, engine or transmission program for planning and capacity
allocation purposes. The contracts that we enter into with many of our customers are to supply the customer's requirements for all the engines or transmissions of a particular type actually produced,
rather than for a specified quantity of products. However, there is no minimum unit purchase "guarantee" from the customer and firm orders for us consist only of customer orders to release shipments
of components, assemblies, modules or systems which typically represent approximately three to six weeks' supply of products. In addition, delays or extended "ramp-ups" associated with the
launch of new production facilities and programs may also result in production level variances. To the extent estimated production volumes are not attained, our production economies expected at the
time of quotation may not be realized and engineering, design, tooling or other capital costs incurred by us may not be fully recovered.

CURRENCY EXPOSURE

Although our financial results are reported in Canadian dollars, a material portion of our sales and operating costs are denominated in euros,
U.S. dollars, Korean won or other currencies. To the extent that our manufacturing facilities may, from time to time, make commitments to sell their products in currencies different from the
currency required to pay for the necessary labour, materials and equipment to perform sales contracts, any significant long-term fluctuations in relative currency values could adversely
affect our results of operations. In particular, our results of operations may be adversely affected by a strengthening of the Canadian dollar against the U.S. dollar, the euro or other
currencies in which we generate revenues or incur expenses. We employ hedging programs, primarily through the use of foreign exchange forward contracts, in an effort to manage our
foreign exchange exposure and to reduce the impact of currency fluctuations on our profit margins. The amounts and timing of the foreign exchange forward contracts are dependent upon a number of
factors, including anticipated production volumes and delivery schedules, customer payment dates and product costs payable in foreign currencies. However, there can be no assurance that these foreign
exchange forward contracts

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will be effective hedges (for example, if projected net foreign cash inflows decline significantly) or that our counterparties on such contracts will not default thereunder.

In
addition, we do not hedge the business activities of self-sustaining foreign subsidiaries, and accordingly, our results of operations could be further affected by a
significant change in the relative values of the Canadian dollar versus the U.S. dollar, the euro or the Korean won.

ENVIRONMENTAL MATTERS

We are subject to a wide range of environmental laws and regulations imposed by governmental authorities relating to air emissions, soil and ground water quality,
wastewater discharge, waste management and the storage of hazardous substances. These environmental laws and regulations are complex, change frequently and may become more stringent and expansive over
time. To the extent that we may not be in material compliance with all such laws and regulations, we may incur substantial environmental compliance costs or liabilities in the future.

To
date, environmental laws and regulations have not had a material adverse effect on our operations or financial condition. We have made, and anticipate continuing to make, significant
expenditures for environmental matters. We regularly assess the work and costs required to address environmental matters, but we are not able to predict the future costs (whether material or not)
which may be incurred to meet environmental obligations. See "ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS  ENVIRONMENTAL MATTERS".

NEW FACILITIES

From time to time, we may increase our production capacity through the construction of new manufacturing facilities or the expansion of existing facilities. New
or expanded facilities may be required to accommodate the award of new business or to facilitate the introduction of new manufacturing processes or technologies. However, the construction of new
facilities or the expansion of existing facilities involves a number of areas of operational and financial risks. For example, construction delays associated with poor weather, labour disruptions,
costs overruns, shortages of construction materials and delays associated with the installation, testing and start-up of new production equipment or manufacturing processes could have a
significant adverse effect on our financial condition or production capabilities.

Since
new or expanded facilities may be constructed to accommodate the launch of new customer production programs, the added complexity associated with new program launches can increase
this risk. Any delays
which impair an OEM's ability to launch a new vehicle type or engine or transmission program could negatively impact our customer relationships and expose us to reimbursement claims from the OEM for
costs arising out of such delays, which could have a material adverse effect on our operations and future profitability. Similarly, delays in program launches attributable to an OEM or its other
suppliers, as well as delays in the construction of their facilities, could have a significant adverse financial effect on us.

GOVERNMENT REGULATIONS

There can be no assurance that a change in the current regulatory environment would not adversely affect our operations. Our operations could be adversely
affected by changes in tariffs and duties imposed on our products, as well as tighter border controls resulting from heightened security measures.

AVAILABILITY OF FINANCING

At some point in the future, we may need to raise additional funds to refinance existing credit facilities or to take advantage of growth opportunities. There can
be no assurance that additional debt or equity financing will be available on commercially reasonable terms, if at all. If adequate funds are not available, or are not available on acceptable terms,
we may not be able to take advantage of growth opportunities, develop new products and processes or otherwise respond to competitive pressures.

31

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CONTROL OF TESMA AND RELATIONSHIP WITH MAGNA

The Stronach Trust controls Magna through its right to direct the votes attached to a sufficient number of the class B shares of Magna which carry a
majority of the votes attaching to all outstanding voting shares of Magna. Mr. Frank Stronach, the founder and the chairman of Magna, together with three other members of his family (including
Ms. Belinda Stronach, our Chairman and the President, Chief Executive Officer and a director of Magna), are the trustees of the Stronach Trust. Mr. Stronach and Ms. Stronach are
also two of the members of the class of potential beneficiaries of the Stronach Trust.

The
relationship between us and Magna is not "arm's length". As at October 28, 2002, Magna, through its direct and indirect ownership of 100% of our outstanding Class B
Shares, controlled approximately 88.7% of the total votes attaching to all our outstanding Class A Subordinate Voting Shares and Class B Shares. Accordingly, Magna is able to elect all
directors on our Board (subject to the "independent director" requirements contained in our Corporate Constitution, see "ITEM 8. CORPORATE CONSTITUTION  BOARD OF
DIRECTORS"), and effectively controls us. In addition, subject to our Corporate Constitution, the fiduciary duty of our directors to act in our best interests and other applicable law, Magna is able
to cause us to effect certain corporate transactions without the consent of our minority shareholders and to control the amount and timing of dividend payments. In addition, Magna will be able to
cause or prevent a change in control of us, although Magna has advised that it currently intends to retain such voting control.

In
certain cases, the interests of Magna may not be the same as those of the other holders of our shares, and conflicts of interest may arise. While holders of our Class A
Subordinate Voting Shares and Magna, as the sole direct and indirect holder of our Class B Shares, will receive dividends equally share for share, Magna will also receive the affiliation fee
under the Affiliation Agreement. See " Affiliation Agreement" below. As the affiliation fee is based on our annual sales revenues, Magna may prefer to see an increase in such
sales revenues even at the expense of our operating profits. In addition, the Affiliation Agreement may be amended or terminated at any time by Magna acting individually and through its control of us,
subject to approval by a majority of the independent directors of our Board. Under applicable corporate law, Magna, in its capacity as a holder of our shares, does not owe a fiduciary duty to us or
any other shareholder.

Although
there is currently limited product competition between us, Magna and Magna's other affiliates (including Magna Steyr), Magna or its other affiliates may supply products or use
manufacturing processes similar to those used by us. In addition, to the extent that we, Magna, or Magna's other affiliates develop new products or processes or enter into new businesses or markets,
competition between us and Magna or such other affiliates may increase. There is no agreement between us and Magna to deal with potential conflicts of interest that may arise as a result of such
competition or the allocation of corporate opportunities between us and Magna in the event of a conflict. We believe, as does Magna, that such opportunities are most appropriately reviewed and dealt
with on a case-by-case basis after considering all relevant issues, including the cost-effective allocation of available resources, the availability of production
capacities and the requests of customers. It is possible, however, that after a review of the relevant issues, corporate opportunities may be allocated to Magna or its other affiliates rather than to
us. To the extent that such opportunities may be significant, our financial prospects could be adversely affected. Although Magna currently allows unrestricted competition among its affiliates
(including us), Magna nevertheless could intensify such competition at our expense or could limit our entry into new businesses.

Notwithstanding
our relationship with Magna, our Corporate Constitution provides that a minimum of two directors on our Board must be individuals who are not our officers or employees or
any of our affiliates (including Magna), or directors of any of our affiliates (including Magna), or persons related to any such officers, employees or directors, and that a majority of the directors
on our Board must be individuals who are not our officers or employees or persons who are related to such persons. Currently, four of the seven directors on our Board are not (and are not related to)
an officer or employee of ours or officers, employees or directors of our affiliates (including Magna). See "ITEM 8. CORPORATE CONSTITUTION 
BOARD OF DIRECTORS". Policies of applicable Canadian securities regulatory authorities recommend that issuers involved in a "related party transaction" have such transaction approved by a special
committee of directors consisting only of directors who are independent from the interested party and, in certain circumstances, require approval of such transaction by a majority of disinterested
shareholders. We have

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previously constituted such special committees of independent directors, and intend to continue to do so in appropriate circumstances.



We are a party to an Affiliation Agreement with Magna which formalizes certain aspects of our relationship and which continues to substantially reflect the
arrangements adhered to by Magna and us (including by our predecessor corporations) since September 1, 1988. Pursuant to the Affiliation Agreement, Magna provides us with:



in
return for an affiliation fee calculated on the basis of 1.0% of our consolidated net sales. Pursuant to our Corporate Constitution, the affiliation fee may not be increased without the prior
approval of the holders of our Class A Subordinate Voting Shares and the holders of our Class B Shares, each voting as a separate class. Any Class A Subordinate Voting Shares
held, controlled or directed by Magna or by persons who, by agreement, are acting jointly with Magna (either directly or indirectly) are required to be excluded from the class vote. See "ITEM 8.
CORPORATE CONSTITUTION 
AFFILIATION AGREEMENT".

Under
the Affiliation Agreement, Magna has the right to obtain non-exclusive licenses under our present and future patents, upon normal commercial terms, to utilize any such
patent in a field of operation or area of use not intended to be utilized by us and in respect of products which do not compete with products produced by us. Subject to Magna's discretion to license
any new technology or intellectual property developed by Magna to any of Magna's subsidiaries, which may or may not include us, we have agreed with Magna to make reasonable commercial efforts to
license to the other exclusively, upon normal commercial terms, any new technology or intellectual property developed by either us or Magna.

The
Affiliation Agreement also provides that all programs established by Magna for the general benefit of Magna's employees (other than the Magna employee equity participation and profit
sharing program) will be made available to our employees, and that we will pay ourpro ratashare of the costs of these programs.
Specifically, the Affiliation Agreement also provides that we will fund ourpro ratashare of the cost of Simeon Park, a 100 acre recreational
park situated near Toronto, Ontario maintained by Magna for the exclusive use of the employees (and their families) of Magna and its affiliates, including us.

The
Affiliation Agreement, which was due to expire on July 31, 2002, was extended effective August 1, 2002 for a period of seven years and five months ending on
December 31, 2009. Under the terms of the extended Affiliation Agreement, affiliation fees payable to Magna will continue to be calculated on the basis of 1.0% of our consolidated net sales.
However, the extended Affiliation Agreement provides that there is no affiliation fee payable on the net sales generated from businesses acquired by us in the fiscal year of the acquisition and only
50% of the affiliation fee (i.e. a fee calculated at 0.5% of net sales) is payable in the following year. The full 1.0% affiliation fee is payable by us on net sales from such acquired business
in all subsequent fiscal years.



Under the terms of a Social Fee Agreement between us and Magna, we pay Magna a fee based on 1.5% of our Pre-Tax Profits as a contribution to social
and charitable programs coordinated by Magna on behalf of itself and its affiliates, including us. This social commitment fee represents partial compliance with our requirement in

33

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the Corporate Constitution to allocate a portion of our Pre-Tax Profits for political, patriotic, philanthropic, charitable, educational, scientific, artistic, social or other useful
purposes in the communities in which we and our affiliates, including Magna, operate.

The
Social Fee Agreement, which was due to expire on July 31, 2002, was extended effective August 1, 2002, on the same terms, for a period of seven years and five months
ending December 31, 2009. See "ITEM 8. CORPORATE CONSTITUTION  SOCIAL OBJECTIVES".



We enter into separate arrangements from time to time with Magna Services Inc. ("ServiceCo"), a wholly-owned subsidiary of Magna, regarding the provision
of certain management and administrative services for charges negotiated annually. Currently, the services provided by ServiceCo to us include information technology (WAN infrastructure and support
services), administration of the Tesma EPSP, foreign marketing services, finance, treasury and legal support, and management and technology training. We may be dependent on ServiceCo to provide other
services in the future. To the extent that such service arrangements are not entered into with ServiceCo for any reason, we may not be able to obtain similar services on comparable terms from third
parties.



During fiscal 2002, we embarked on or completed various real estate projects, including the construction of a new transmission components manufacturing facility,
expansions at three existing manufacturing facilities and the construction of our new corporate office, all of which were sourced through MI Developments Inc., a wholly-owned subsidiary of
Magna.

Our
manufacturing plants buy from and sell products to Magna's plants on an ongoing basis in the normal course of their business and on normal commercial terms. As such, Magna is both a
supplier to us and a customer of ours. We also lease various land and buildings used in our operations from Magna and its affiliates.

In
addition, we expect to enter into additional agreements and transactions with Magna and its affiliates in the future, the terms of which will be determined by negotiation at such
time. There can be no assurance that agreements or transactions between us and Magna (or its affiliates) have been or will be on the same terms as could be obtained from independent third parties.

ITEM 10. ADDITIONAL INFORMATION

Additional information, including directors' and officers' compensation and indebtedness, principal holders of our securities, options to purchase securities,
interests of insiders in material transactions, shareholder performance review graph, report on corporate governance, the report on executive compensation by our Human Resources and Compensation
Committee, and other matters, where applicable, is contained in our management information circular/proxy statement dated October 30, 2002 for our annual meeting of shareholders held on
December 5, 2002.

Any
person may obtain copies of the following documents upon request from our Secretary c/o Tesma International Inc., 1000 Tesma Way, Concord, Ontario, L4K 5R8:



34

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35

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SCHEDULE "A"    PRINCIPAL SUBSIDIARY ENTITIES

The following is a list of our principal subsidiary entities as at July 31, 2002 and their respective jurisdictions of incorporation or formation.
Parent/subsidiary relationships are identified by indentations. The "percentage interest" column indicates the percentage of all voting securities, and, where applicable, non-voting
securities, owned by us or over which we exercise control or direction.

|                                             |                     | Percentage Interest (Direct/Indirect) |                                  | Jurisdiction of Incorporation/Formation
|-------------------------------------------- | ------------------- | ------------------------------------- | -------------------------------- | ---------------------------------------
|Litens Automotive Partnership(1)             |                     | 76.8                                  |                                  | Ontario                                
|                                             | 836112 Ontario Inc. |                                       | 100.0                            | (2)                                    
|                                             |                     | Latco AG                              |                                  | 100.0                                  
|                                             |                     |                                       | Atech Vertriebs GmbH             |                                        
|                                             |                     | Litens Automotive of America, Inc     |                                  | 100.0                                  
|                                             |                     | Litens Automotive do Brasil Ltda.     |                                  | 100.0                                  
|                                             |                     | Litens Automotive (Korea) Inc.        |                                  | 100.0                                  
|                                             |                     | Litens Holdings (Bermuda) Limited     |                                  | 100.0                                  
|                                             |                     |                                       | Litens Holdings Verwaltungs GmbH |                                        
|                                             |                     |                                       | Litens Holdings GmbH & Co. KG(3) |                                        
|                                             |                     |                                       |                                  | Litens Automotive GmbH                 
|                                             |                     |                                       |                                  | Litens Automotive Srl                  
|857531 Ontario Inc.                          |                     | 100.0                                 |                                  | Ontario                                
|Tesma International (Barbados) Inc.          |                     | 100.0                                 |                                  | Barbados                               
|Tesma International of America, Inc.         |                     | 100.0                                 |                                  | Delaware                               
|Tesma Europa GmbH                            |                     | 100.0                                 |                                  | Germany                                
|Tesma Motoren-und Getriebetechnik Ges.m.b.H. |                     | 100.0                                 |                                  | Austria                                
|HAC Corporation                              |                     | 100.0                                 |                                  | South Korea                            
|Eralmetall Verwaltungs GmbH                  |                     | 100.0                                 |                                  | Germany                                
|Eralmetall GmbH & Co. KG(4)                  |                     | 100.0                                 |                                  | Germany                                
|STT Technologies Inc.                        |                     | 75.0                                  |                                  | Ontario                                

---

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2.    Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended July 31, 2002.

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MANAGEMENT'S DISCUSSION & ANALYSIS

Tesma International Inc. (Tesma or the Company) designs, engineers, tests and manufactures technologically-advanced powertrain (engine, transmission and
fuel) components, modules and systems for the global automotive industry. Employing over 4,700 skilled and motivated people in 22 manufacturing and two research facilities located in North America,
Europe and Asia, Tesma is leveraging its strong product focus, extensive processing capabilities and established customer relationships to generate industry-leading sales growth and superior financial
performance.

The
following management's discussion and analysis of the consolidated operating results and financial position of Tesma for the years ended July 31, 2002 and 2001 (MD&A) should
be read in conjunction with the accompanying consolidated financial statements and notes found on pages 33 through 61 of this annual report.

OVERVIEW

Tesma generated another solid year of revenue growth in fiscal 2002 while maintaining strong profitability. A steady North American automotive market, in
particular in the second half of the fiscal year, helped fuel this growth, offset somewhat by a decline in the European market.

The
Company continued to execute its strategy of expanding production of value-added powertrain modules and systems as a full service supplier. During the year, Tesma launched various
new programs including alternator decouplers and balance shafts in its Engine Technologies Group, its first North American fuel filler tube assemblies and a new rear axle crossover component in
Europe. In addition, over the next few
months the Company will be launching its first fuel tank assemblies in Europe, a complex transmission oil pump in North America and various other new transmission, engine and fuel system modules and
components.

Tesma
has also been successful in developing business with new customers, evidenced by new supply arrangements with Honda and Nissan achieved during the year and recently awarded
business with Hyundai, which the Company views as a strategic customer.

Tesma's
financial position remained strong throughout the year and was improved further by the proceeds of a successful share offering completed in July 2002. Management intends
to utilize this financial strength to focus the Company's resources on continued innovation through research and development (R&D), aggressively pursuing opportunities for cost improvements and
production efficiencies, and furthering Tesma's presence in the global marketplace through strategic acquisitions and other joint venture arrangements.

BUSINESS ACQUISITIONS

Effective December 31, 2001, the Company increased its ownership interest in STT Technologies Inc. (STT), a jointly controlled entity, to 75%
through the acquisition of an additional 30% interest for nominal cash consideration. The transaction was accounted for using the purchase method. Pursuant to agreements executed concurrent with the
purchase, the remaining shareholder of STT has the option to purchase an additional 25% equity ownership interest from the Company at any time prior to August 1, 2004 at a formula price. During
the period that the option remains outstanding, the Company and the remaining shareholder each retain the right to nominate one of the two directors of STT.

As
a result of this transaction, Tesma consolidated an additional 30% of the revenues and expenses of STT in its results from the date of acquisition and an additional 30% of STT's
assets and liabilities are now included in the Company's consolidated balance sheet at July 31, 2002.

ACCOUNTING CHANGES

Effective August 1, 2001, the Company adopted the Canadian Institute of Chartered Accountants (CICA) new recommendations under Handbook
Section 3062, "Goodwill and Other Intangible Assets". The new rules require non-amortization of existing and future goodwill and intangible assets that meet the criteria for
indefinite life. Accordingly, the Company ceased recording goodwill amortization upon adoption of the new standard. Instead, the Company must determine on an annual basis whether the fair value of
each reporting unit to which goodwill has been attributed is less than the carrying value of the reporting unit's net assets including

38

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goodwill, thus indicating impairment. Any impairments are then recorded as a separate charge against earnings and a reduction of the carrying value of goodwill.

In
accordance with the new recommendations, the Company prospectively applied these new rules without restatement of any comparative periods. However, if retroactively applied, net
income attributable to Class A Subordinate Voting and Class B Shares for the comparative years ended July 31, 2001 and July 31, 2000 would increase by $1.7 million
and $1.6 million, respectively. Similarly, basic and diluted earnings per Class A Subordinate Voting Share or Class B Share would each have been approximately $0.06 higher in each
of the comparative years.

The
Company has performed the required fair value assessments of the reportable segments to which underlying goodwill has been attributed and determined that no charge for impairment of
goodwill is required for the year ended July 31, 2002.

RESULTS OF OPERATIONS

Vehicle Volumes(in millions of units)

|              |  |      |  |      |  | Change
|------------- |  | ---- |  | ---- |  | ------
|
|North America |  | 16.4 |  | 16.4 |  | unch. 
|Europe        |  | 16.0 |  | 16.8 |  | (0.8  

Production
volumes in North America increased by 36,000 units, or 0.2%, to 16.4 million units. Among the North American "BigThree", aggressive incentive campaigns were launched
earlier in the year fueling
demand, especially for General Motors (GM), our largest customer where production volumes for the year were up 4%. In Europe, production volumes for the year approximated 16.0 million units
which was down over 800,000 units or 5% compared to 16.8 million units in the prior year.

Sales

|                     |  | 2002 |         | 2001 |   | Change 
|-------------------- |  | ---- | ------- | ---- | - | -------
|North America        |  | $    | 1,058.9 |      | $ | 948.3  
|Europe               |  |      | 253.6   |      |   | 219.7  
|Asia                 |  |      | 46.4    |      |   | 45.6   
|Intersegment         |  |      | (17.3   | )    |   | (11.5  
|                     |  |      |         |      |   |        
|Total external sales |  | $    | 1,341.6 |      | $ | 1,202.1
|                     |  |      |         |      |   |        

Consolidated
sales in fiscal 2002 increased 12% from fiscal 2001 to a record $1.342 billion. North American sales rose 12%, while sales increased 15% in Europe. This strong growth
occurred despite only a nominal increase in North American vehicle production volumes for the year and a softening of the European market which negatively impacted production.

[SALES
BY SEGMENT PIE CHART]

The
increase in sales at Tesma's 15 North American manufacturing facilities reflects higher volumes on the Vortec 4200 engine used in GM's SUV family, increased volumes and content on
the GM L850 and Line 6 engine programs, Ford's Modular V8 engine program and significant volume increases on various coolant management system programs. In addition, the sales increase reflects higher
volumes on the GM 1/2 accumulator cover and stator shaft programs, increased volumes on certain tensioner and alternator decoupler programs, increased exports to Europe and a stronger
U.S. dollar, offset by pricing concessions to various OEM customers, and a lower realized exchange rate on euro denominated export sales. North American sales represented 78% of total sales in
fiscal 2002, consistent with the prior year.

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Tesma's
5 European manufacturing facilities experienced higher sales in fiscal 2002, despite the decrease in vehicle production in the market. This growth was fueled by a
strengthening of the euro relative to the Canadian dollar, which contributed an estimated $13.4 million of the increase. In addition, the sales increase reflects the launch and ramp up of a new
rear axle crossover component for DaimlerChrysler, higher tooling sales mainly associated with the upcoming fuel tank program launches for the Volkswagen Group (VW Group) and Volvo and stronger demand
for service and aftermarket parts, offset by the decrease in European vehicle production volumes. Europe represented 19% of total sales in fiscal 2002 compared to 18% in the prior year.

Increased
sales at Tesma's 2 South Korean facilities are primarily the result of the ramp up of volumes for an oil adapter for GM and oil pumps for the VW Group, both launched in the
fourth quarter of the prior year, and higher demand in the Korean domestic market, offset by slightly lower volumes on the FN oil pump shipped to Ford in the U.S. and a weakening of the Korean won
relative to the Canadian dollar. Asian sales represented 3% of total sales in fiscal 2002, down from 4% in the prior year.

Overall
tooling and other sales increased 3% in fiscal 2002 to a record $78.0 million, reflecting Tesma's ongoing involvement in new customer programs, upcoming product launches
and the continued expansion of its product offerings in all markets.

During
fiscal 2002, the net impact of fluctuations in foreign currencies increased sales by approximately 1% (a 2% decrease was experienced in fiscal 2001), primarily as a result of the
increase in the value of the euro and U.S. dollar relative to the Canadian dollar.

Sales
to North American customers increased 11% to $924.6 million compared to $831.1 million in fiscal 2001, and represented 69% of consolidated sales in fiscal 2002.
Tesma's North American content per vehicle increased 13% to over $54 from $48 a year ago due to the specific programs discussed above. Sales to European-based customers grew 14% to
$365.2 million compared to $321.5 million in fiscal 2001, and represented 27% of consolidated sales. European content per vehicle increased by approximately 10% to €14
compared to €13 a year ago reflecting the new programs launched for European customers. Sales to Australasian customers increased by 10% to $34.2 million in fiscal 2002 compared
to $31.1 million in fiscal 2001, and represented approximately 3% of consolidated sales. The economic environment in South America remained challenging in fiscal 2002 and, as a result, Tesma's
sales
to customers in this region decreased by 4% to $17.6 million and continue to account for approximately 1% of Tesma's consolidated sales.

Sales
to GM, Ford, DaimlerChrysler and the VW Group, Tesma's four largest customers, were 76% of total sales, consistent with the prior year. GM represented 42% of consolidated sales
compared to 40% in fiscal 2001. No single product accounted for more than 10% of Tesma's consolidated sales in fiscal 2002 or 2001. Approximately 12% of Tesma's consolidated sales represented a number
of products produced for GM's GENIII engine program, compared to 14% of sales associated with this program in the prior year.

On
a product-line basis, Tesma Engine Technologies sales increased to $920 million compared to $843 million a year ago and accounted for 69% of consolidated
sales compared to 70% a year ago. The growth was the result of increased sales of tensioners and decouplers, volume increases in the water pump and die-casting businesses in North America,
increased volumes for plastic coolant management products in the North American market and an increase in service and aftermarket sales in Europe.

Sales
of Tesma Transmission Technologies products rose 15% to $328 million from $285 million a year ago and represented 24% of total sales in fiscal 2002, consistent with
the prior year. The increase is primarily due to the volume increases for the flow-formed rotating clutch housings for the Allison LCT transmission, the GM 1/2 accumulator
and stator shaft programs, and the launch of a reaction shell for GM.

Tesma
Fuel Technologies sales increased by 27% to $94 million from $74 million in fiscal 2001, driven in part by a strengthening euro relative to the Canadian dollar, as a
significant portion of this group's operations are located in Europe. Also contributing to the increase were higher tooling sales, primarily associated with the upcoming launches of the stainless
steel fuel tank assemblies involving two of the Company's divisions. Tesma Fuel Technologies sales represented 7% of consolidated sales in fiscal 2002 and 6% in fiscal 2001.

|[EUROPEAN CONTENT PER VEHICLE GRAPH] |  | [N.A. CONTENT PER VEHICLE (INCLUDING MEXICO) GRAPH]
|------------------------------------ |  | ---------------------------------------------------

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Gross Margin

|                        |  | 2002 |         | 2001 |   | Change 
|----------------------- |  | ---- | ------- | ---- | - | -------
|Sales                   |  | $    | 1,341.6 |      | $ | 1,202.1
|Cost of goods sold      |  |      | 1,047.3 |      |   | 931.9  
|                        |  |      |         |      |   |        
|Gross margin            |  | $    | 294.3   |      | $ | 270.2  
|                        |  |      |         |      |   |        
|Gross margin percentage |  |      | 21.9%   |      |   | 22.5%  
|                        |  |      |         |      |   |        

Gross
margin as a percentage of sales declined 3% infiscal 2002 to 21.9% compared to 22.5% a year ago. The positive impact of improved operating efficiencies at the Company's North
American die-casting facility compared to the prior year (when significant operating and production issues existed), growth in content per vehicle in both North America and Europe and
improvements at certain other facilities were more than offset by higher group engineering and development costs, production volume declines in Europe, higher infrastructure and support costs at
various facilities preparing for program launches, customer pricing concessions, lower tooling margins in the current year, annual wage increases, continued losses at the Company's German
die-casting facility and an increase in R&D spending.

[GROSS
MARGIN AS A % OF SALES GRAPH]

Gross
expenditures on R&D in fiscal 2002 were $24.4 million, $5.5 million higher than the prior year. Customer and government funding and tax credits reduced R&D expenses
by $6.2 million. Gross spending on R&D amounted to 19% of profit before tax in fiscal 2002 up from 15% in fiscal 2001, exceeding Tesma's Corporate Constitution requirement of investing no less
than 7% of profit before tax in R&D.

Income before Income Taxes

|                                    |  | 2002 |       | 2001 |   | Change
|----------------------------------- |  | ---- | ----- | ---- | - | ------
|Gross margin                        |  | $    | 294.3 |      | $ | 270.2 
|less:                               |  |      |       |      |   |       
|Selling, general and administrative |  |      | 85.3  |      |   | 77.4  
|Depreciation and amortization       |  |      | 58.7  |      |   | 51.6  
|Interest, net                       |  |      | 4.0   |      |   | 1.7   
|Affiliation fees and other charges  |  |      | 18.2  |      |   | 15.3  
|                                    |  |      |       |      |   |       
|Income before income taxes          |  | $    | 128.1 |      | $ | 124.2 
|                                    |  |      |       |      |   |       

Income
before income taxes increased by 3% to $128.1 million in fiscal 2002 compared to $124.2 million in fiscal 2001. The increase in gross margin was partially offset by
higher non-cash charges for depreciation, increased affiliation fees and other charges paid to Magna International Inc. (Magna), increased selling, general and administrative (SG&A)
costs and interest.

[INCOME
BEFORE INCOME TAXES BY SEGMENT PIE CHART]

Income
before income taxes at Tesma's North American operations increased 12% to $116.1 million or 91% of consolidated income before income taxes compared to $103.6 million
or 83% in fiscal 2001. Tesma's European operations contributed $10.5 million or 8% of consolidated income before income taxes compared to $17.2 million or 14% a year ago. The Asian and
South American operations which include local sales and engineering offices, contributed $1.5 million in income before income taxes in 2002 compared to $3.4 million last year.

SG&A
expenses increased to $85.3 million in fiscal 2002 compared to $77.4 million in fiscal 2001, approximating 6.4% of sales in both years. The higher SG&A expenses in
fiscal 2002 primarily resulted from additional personnel hired to further develop the Company's corporate and group structures and to support operations with new program launches, higher expenses at
the Company's European operations due to the higher average exchange rates used to translate their SG&A expenses to Canadian dollars, $0.6 million of

41

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transaction costs related to the abandoned merger between Tesma and the Magna Steyr Group, severance costs and an increased share of the SG&A expenses of STT. These increases were only partially
offset by lower marketing costs, a net recovery of accounts receivable balances previously provided for and higher foreign exchange gains in the current year compared to fiscal 2001 when a foreign
exchange translation loss of $3.4 million relating to dividends paid by a foreign subsidiary was realized.

[SG&A
AS A % OF SALES GRAPH]

Depreciation
and amortization expense increased by 14% to $58.7 million or 4.4% of sales in fiscal 2002 from $51.6 million or 4.3% of sales in fiscal 2001. The increase
resulted from the $220 million of capital asset additions over the past two years incurred to support new business, offset by the elimination of goodwill amortization under the new CICA rules.

Net
interest expense increased to $4.0 million in fiscal 2002 compared to $1.7 million in fiscal 2001 due primarily to lower levels of cash and cash equivalents for the
majority of fiscal 2002 resulting in a reduction in the amount of interest income earned.

Affiliation
fees and other charges paid to Magna increased by 19% to $18.2 million in fiscal 2002 compared to $15.3 million in fiscal 2001 and included the following:



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Net Income and Earnings per Share

|                                                                                |         | 2002    |       | 2001 |      | Change
|------------------------------------------------------------------------------- | ------- | ------- | ----- | ---- | ---- | ------
|Income before income taxes                                                      |         | $       | 128.1 |      | $    | 124.2 
|Income taxes                                                                    |         |         | 44.3  |      |      | 35.4  
|                                                                                |         |         |       |      |      |       
|Net income attributable to Class A
Subordinate Voting Shares and Class B Shares |         | $       | 83.8  |      | $    | 88.8  
|                                                                                |         |         |       |      |      |       
|Earnings per Class A Subordinate
Voting Share or Class B Share                  |         |         |       |      |      |       
|                                                                                |         | Basic   |       | $    | 2.85 |       
|                                                                                |         | Diluted |       | $    | 2.81 |       
|                                                                                |         |         |       |      |      |       
|Average number of shares outstanding (in millions)                              |         |         |       |      |      |       
|                                                                                | Basic   |         |       | 29.5 |      |       
|                                                                                | Diluted |         |       | 29.8 |      |       
|                                                                                |         |         |       |      |      |       

Tesma's
effective income tax rate increased to 34.6% in fiscal 2002 compared to 28.5% last year. However, the effective tax rate in fiscal 2001 was significantly impacted by
one-time tax recoveries totaling $9.4 million that were realized as part of a tax planning strategy implemented in the fourth quarter of the year. Excluding these tax recoveries
(and related foreign exchange translation losses realized), the effective income tax rate in fiscal 2001 was 35.1%.

[DILUTED
EPS GRAPH]

Tesma's
net income attributable to Class A Subordinate Voting Shares and Class B Shares decreased by 6% to $83.8 million in fiscal 2002 compared to
$88.8 million in fiscal 2001. The tax refund transactions effected in fiscal 2001 increased net income in the prior year by $6.0 million, net of the realized translation losses.

On
a diluted basis, earnings per Class A Subordinate Voting Share or Class B Share decreased 6% to $2.81 from $3.00. Basic earnings per Class A Subordinate Voting
Share or Class B Share also decreased by 6% to $2.85 from $3.04 in fiscal 2001. The beneficial impact of the tax refunds on fiscal 2001 basic and diluted earnings per share was $0.21 and $0.20,
respectively.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

|Cash provided from (used for):          |  | 2002 |        | 2001 |   | Change
|--------------------------------------- |  | ---- | ------ | ---- | - | ------
|Operating activities                    |  | $    | 143.7  |      | $ | 73.5  
|Investing activities                    |  |      | (122.4 | )    |   | (99.4 
|Financing activities                    |  |      | 56.0   |      |   | (21.6 
|Effect of exchange rate changes on cash |  |      | 3.8    |      |   | 0.1   
|                                        |  |      |        |      |   |       
|Net increase (decrease) in cash         |  | $    | 81.1   |      | $ | (47.4 
|                                        |  |      |        |      |   |       

Cash
balances at July 31, 2002, net of bank indebtedness, were $146.7 million compared to $51.0 million a year earlier. The increase was a result of cash provided
from operations, proceeds from the issuance of Class A Subordinate Voting Shares through a successful public share offering completed in July 2002 and the exercise of stock options
during the year, offset by capital expenditures, investments in non-cash working capital, the payment of dividends and the net repayment of debt.

42

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Operating Activities

|                                        |  | 2002 |       | 2001 |   | Change
|--------------------------------------- |  | ---- | ----- | ---- | - | ------
|Net income                              |  | $    | 83.8  |      | $ | 88.8  
|Items not involving current cash flows  |  |      | 69.4  |      |   | 45.6  
|                                        |  |      |       |      |   |       
|Cash provided from operations           |  |      | 153.2 |      |   | 134.4 
|Net change in non-cash working capital  |  |      | (9.5  | )    |   | (60.9 
|                                        |  |      |       |      |   |       
|Cash provided from operating activities |  | $    | 143.7 |      | $ | 73.5  
|                                        |  |      |       |      |   |       

Cash
provided from operations, before the effect of changes in non-cash working capital, increased by 14% to $153.2 million in fiscal 2002 compared to
$134.4 million in fiscal 2001 due to higher non-cash charges, mainly depreciation and future tax provisions. Cash provided from operating activities increased 96% to
$143.7 million in fiscal 2002 due to significantly lower incremental investments in accounts receivable and inventory levels combined with increased levels of accounts payable and accruals in
the current year compared to decreases in these balances a year ago.

[CASH
PROVIDED FROM OPERATIONS GRAPH]

Investing Activities

|                                                                          |  | 2002 |        | 2001 |   | Change
|------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|Capital asset additions                                                   |  | $    | (122.0 | )    | $ | (97.6 
|Increase in other assets                                                  |  |      | (1.7   | )    |   | (1.4  
|Increased investment in subsidiaries                                      |  |      | (0.8   | )    |   | (0.8  
|Proceeds from disposal of capital and other assets                        |  |      | 1.5    |      |   | 0.4   
|Cash and cash equivalents acquired on additional investment in subsidiary |  |      | 0.6    |      |   |      
|                                                                          |  |      |        |      |   |       
|Cash used for investing activities                                        |  | $    | (122.4 | )    | $ | (99.4 
|                                                                          |  |      |        |      |   |       

Investment
spending in fiscal 2002 increased by 23% to $122.4 million compared to $99.4 million in fiscal 2001. Cash spent on capital assets increased by 25% to
$122.0 million compared to $97.6 million last year, and includes $25.3 million invested in real estate consisting of a new Tesma Transmission Technologies manufacturing facility,
ongoing and completed expansions at five other manufacturing facilities and the Company's new corporate offices. The balance of capital spending was used primarily for the purchase of manufacturing
and assembly line equipment to support new production programs. In both fiscal 2002 and fiscal 2001, the $0.8 million paid on the purchase of subsidiaries relates to earnout payments on the
fiscal 1999 Sterling Heights acquisition. The $0.6 million of cash acquired on additional investment in a subsidiary is directly related to the Company's acquisition of the additional 30%
equity ownership interest in STT.

Capital
spending in the five-month period ending December 31, 2002 and in calendar 2003 is expected to be in the range of $70 to $80 million and $120 to
$130 million, respectively, primarily to support upcoming production contracts and launches. Management expects that cash balances on hand, existing unutilized credit facilities and internally
generated funds from operations will be sufficient to meet all planned capital spending requirements for these periods.

[CAPITAL
EXPENDITURES GRAPH]

43

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Financing Activities

|                                                   |  | 2002 |       | 2001 |  
|-------------------------------------------------- |  | ---- | ----- | ---- | -
|Issuance of Class A Subordinate Voting Shares      |  | $    | 98.0  |      | $
|Dividends                                          |  |      | (18.7 | )    |  
|Decrease in bank indebtedness                      |  |      | (18.3 | )    |  
|Repayments of long-term debt                       |  |      | (5.1  | )    |  
|Issues of long-term debt                           |  |      | 0.1   |      |  
|Surrender of stock options                         |  |      |      |      |  
|                                                   |  |      |       |      |  
|Cash provided from (used for) financing activities |  | $    | 56.0  |      | $
|                                                   |  |      |       |      |  

In
July 2002, the Company completed a public offering of 2,850,000 Class A Subordinate Voting Shares at a price of $35.15 per share. Total cash proceeds received on the
share issue, net of underwriter fees and other related costs, amounted to $95.8 million. In addition, 182,400 Class A Subordinate Voting Shares were issued on the exercise of stock
options for consideration totaling $2.2 million compared to 142,600 shares issued for consideration of $1.8 million in fiscal 2001.

Tesma's
Corporate Constitution requires the payment of dividends of at least 20% of after-tax profits (after providing for any preference share dividends) on a rolling
three-year basis. Dividends of $18.7 million ($0.64
per share) were paid on the Class A Subordinate Voting Shares and Class B Shares in fiscal 2002, substantially unchanged from the prior year.

Funds
used to repay advances on operating lines of credit were $18.3 million in fiscal 2002 compared to $3.4 million repaid under the Company's operating lines of credit in
fiscal 2001.

The
repayments of long-term debt in fiscal 2002 were all scheduled repayments. Tesma's ratio of long-term debt to total capitalization was a conservative 0.11:1
at the end of fiscal 2002 compared to 0.15:1 at the end of the previous year.

[LONG-TERM
DEBT AS A % OF TOTAL CAPITALIZATION PIE CHART]

Financing Resources

At July 31, 2002, the Company had cash and cash equivalents on hand (net of bank indebtedness) of $146.7 million. In addition, the Company had
unused and available credit facilities (excluding facilities available for foreign exchange purposes) approximating $107 million. Of the Company's total long-term debt of
$79.6 million, only 6% becomes due and payable in the next 12 months while approximately 86% does not mature until 2006 or later.

Shareholders' Equity

During fiscal 2002, shareholders' equity increased by 43% or $185.0 million due mainly to an increase in undistributed earnings, the share issue completed
in July, stock options exercised and an increase in the value of the currency translation account. As a result, the book value per Class A Subordinate Voting Share or Class B Share
increased by 29% to $19.17 as at the 2002 fiscal year-end from $14.84 at the end of the prior year.

The
increase in the cumulative currency translation adjustment account represents the unrealized increase in the value of Tesma's net investment in its foreign subsidiaries resulting
primarily from the significant strengthening of the euro compared to the Canadian dollar since July 31, 2001 and the strengthening of the U.S. dollar, Korean won and Swiss franc compared
to the Canadian dollar over the same time period.

[BOOK
VALUE PER SHARE GRAPH]

FOREIGN CURRENCY ACTIVITIES

Tesma's operations negotiate sales contracts and purchase materials, equipment and labour generally in the currency of the region in which the operation is
located. Tesma's foreign currency cash flows for the purchase of

44

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materials and capital equipment denominated in foreign currencies are naturally hedged when contracts to deliver certain products are also denominated in those same foreign currencies. In an effort
to manage the remaining exposure, Tesma employs hedging programs primarily through the use of foreign exchange forward contracts that extend through the expected duration of the underlying production
programs.

The
amount and timing of forward contracts are dependent upon a number of factors including anticipated production delivery schedules, anticipated customer payment dates and anticipated
product costs, which may be paid in foreign currencies. Tesma is exposed to credit risk from the potential default by counterparties on its foreign exchange forward contracts, but mitigates this risk
by dealing with only those counterparties considered to be high quality credits. Despite these measures, significant long-term movements in relative currency values could affect Tesma's
operating results. In particular, Tesma's results, including the business activities of self-sustaining foreign subsidiaries that are not hedged, may be adversely affected by movements of
the Canadian dollar against the euro, the U.S. dollar, the Korean won or the Swiss franc.

OUTLOOK

Management anticipates that North American automotive production will remain steady for the foreseeable future. For the three months ended July 31, 2002,
production increased 6% compared to the same period last year. Production levels during this period were particularly strong at GM, the Company's largest customer, where "zero percent financing"
campaigns were extended through July and resulted in inventory levels remaining significantly lower than the prior year. Based on industry production forecasts, management anticipates that volumes for
the five-month period ending December 31, 2002 will approximate 7 million units, which is 5% higher than the same period a year ago. In Europe, management expects production
volumes to remain weak for the balance of 2002 and remains cautious in its expectations, anticipating production to be substantially unchanged from the same period a year ago. Given these forecasts
and Tesma's anticipated product launches and tooling sales, it is expected that the Company's overall revenue growth will be in the range of 10% for the five-month period ending
December 31, 2002. Management also remains positive about the long-term prospects for the Company as industry sources indicate continued growth in OEM powertrain production,
continued growth in OEM outsourcing and higher consumer usage of vehicles will drive supplier growth over the next decade. This, combined with Tesma's product strategy and focus on costs and
production efficiencies, should generate improved profitability going forward.

APPROVED YEAR-END AND REPORTING CURRENCY CHANGES

The Tesma Board of Directors unanimously approved a change of the Company's year-end to December, commencing December 31, 2002. As a result of
this change, Tesma will report results for the five-month period ending December 31, 2002 (the stub period). After the stub period, the annual reporting period for
Tesma will be the calendar year. This will enable all stakeholders in the Company to better compare the Company's performance with its peer group in the automotive parts supply industry.

In
addition, the Board also approved a change in the Company's reporting currency to the U.S. dollar effective January 1, 2003.

RISKS AND UNCERTAINTIES (FORWARD-LOOKING STATEMENTS)

This MD&A contains statements which, to the extent that they are not recitations of historical fact, may constitute "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934. The words "estimate", "anticipate", "believe", "expect" and similar expressions are intended to identify forward-looking
statements. Persons reading this MD&A are cautioned that such statements are only predictions, and that Tesma's actual future results or performance may be materially different.

Forward-looking
information involves certain risks, assumptions, uncertainties and other factors which may cause actual future results or anticipated events to differ materially from
those expressed or implied in any forward-looking statements. In the case of Tesma, these factors include, but are not limited to: Tesma's operating and/or financial performance; the ability of the
Company to finance its business requirements, including raising required funding as necessary; changes in the various economies in which Tesma operates; Tesma's relationship with Magna
International Inc.; fluctuations in interest rates; changes in consumer and business confidence

45

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levels; consumers' personal debt levels; vehicle prices; the extent and nature of purchasing or leasing incentive campaigns offered by automotive manufacturers; environmental emission and safety
regulations; fuel prices and availability; the continuation and extent of outsourcing by automotive manufacturers; the extent and continued use of steel as a primary material for automotive parts
versus alternative materials (such as aluminum and plastics); Tesma's ability to continue to meet customer specifications relating to performance, cost, quality and service; industry cyclicality or
seasonality; trade and/or labour issues or disruptions; customer pricing pressures, pricing concessions and cost absorptions; warranty, recall and product liability claims; actual levels of program
production volumes by Tesma's customers compared to original expectations, including program cancellations or delays and changes in product mix; Tesma's dependence on certain engine and transmission
programs and the market success and consumer acceptance of the vehicles into which such powertrain products are installed; Tesma's relationships with and dependence on certain customers; currency
exposure; technological developments by Tesma's competitors; governmental, environmental and regulatory policies and Tesma's ability to anticipate correspond to changes therein; and other changes in
the competitive environment in which Tesma operates. For a more detailed discussion of some of these factors, reference is made to the disclosures regarding risks and uncertainties set forth in
Tesma's Annual Information Form, Form 40-F and other public filings. Tesma expressly disclaims any intention and undertakes no obligation to update or revise any forward-looking statements to
reflect subsequent information, events, results, circumstances or otherwise.

46

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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

Tesma's management is responsible for the preparation and presentation of the consolidated financial statements and all information in this Annual Report. The
consolidated financial statements were prepared by management in accordance with Canadian generally accepted accounting principles, and, where appropriate, reflect estimates based upon the judgment of
management. Where alternative accounting methods exist, management has selected those that it considered to be the most appropriate in the circumstances. Financial statements include certain amounts
based on estimates and judgments. Management has determined such amounts on a reasonable basis designed to ensure that the consolidated financial statements are presented fairly, in all material
respects. Financial information presented elsewhere in this Annual Report has been prepared by management on a basis consistent with the consolidated financial statements. The consolidated financial
statements have been reviewed by the Audit Committee and approved by the Board of Directors of Tesma.

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

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

The
consolidated financial statements have been audited by Ernst & Young LLP, the independent auditors, in accordance with Canadian generally accepted auditing standards
and United States generally accepted auditing standards on behalf of the shareholders of Tesma. The Auditors' Report outlines the nature of their examination and their opinion on Tesma's consolidated
financial statements.

The
independent auditors have full and unrestricted access to the Audit Committee.

Toronto,
Canada
September 10, 2002

|(signed) Anthony E. DobranowskiPresident & Chief Financial Officer |  | (signed) James L. MouldsVice President, Finance & Treasurer
|------------------------------------------------------------------ |  | -----------------------------------------------------------

AUDITORS' REPORT

To
the Shareholders ofTesma International Inc.

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

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

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at July 31, 2002 and 2001 and the
results of its operations and its cash flows for each

47

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of the years in the three-year period ended July 31, 2002 in accordance with Canadian generally accepted accounting principles.

|                   |  | (signed)             
|------------------ |  | ---------------------
|Toronto, Canada    |  | Ernst &YoungLLP      
|September 10, 2002 |  | Chartered Accountants

48

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3.    Consolidated Financial Statements for the fiscal year ended July 31, 2002 (Note 20 to the Consolidated Financial Statements relates to United States
Accounting Principles and Reporting (U.S. GAAP) and reconciliation to U.S. GAAP.

49

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CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

(a)  Basis of Presentation

The consolidated financial statements of Tesma International Inc. and its subsidiary entities (the Company) have been prepared in Canadian dollars
following Canadian generally accepted accounting principles (Canadian GAAP). These principles are also in conformity, in all material respects, with accounting principles generally accepted in the
United States (U.S. GAAP), except as described in Note 20 to the consolidated financial statements.

(b)  Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary entities. The Company accounts for its interests in jointly
controlled entities using the proportionate consolidation method. All significant intercompany balances and transactions have been eliminated.

(c)  Foreign Exchange

Assets and liabilities of foreign subsidiaries and investees, all of which are self-sustaining, are translated using the exchange rate in effect at
the end of the year and revenues and expenses are translated at the average rate during the year. Exchange gains or losses on translation of the Company's net equity investment in these foreign
subsidiaries and investees are deferred as a separate component of shareholders' equity. The appropriate amounts of exchange gains or losses accumulated in the separate component of shareholders'
equity are reflected in income when there is a reduction in the Company's investment in these subsidiaries and investees as a result of capital transactions.

Foreign
exchange gains and losses on transactions occurring in a currency different than an operation's functional currency are reflected in income, except for gains and losses on
foreign exchange forward contracts used to hedge specific future commitments in foreign currencies. Gains or losses on these contracts are accounted for as a component of the related hedged
transaction. Gains or losses on translation of foreign currency long-term monetary liabilities are deferred and amortized over the period to maturity.

(d)  Use of Estimates

The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that the estimates utilized in preparing its consolidated
financial statements are reasonable and prudent; however, actual results could differ from these estimates.

(e)  Cash and Cash Equivalents

Cash and cash equivalents include cash on account, demand deposits and short-term investments with original maturities of three months or less. Cost
approximates fair value.

(f)    Inventories

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

(g)  Capital Assets

Capital assets are recorded at historical cost, including interest capitalized on capital expenditures in progress, less related investment tax credits and
government grants.

50

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Depreciation
is provided on a straight-line basis over the estimated useful lives of capital assets (including those under capital leases) at annual rates of
21/2 to 5% for buildings, 7% to 10% for general purpose equipment and 10% to 30% for special purpose equipment.

(h)  Goodwill

Goodwill represents the excess of the purchase price of the Company's interest in subsidiary entities over the fair value of the underlying net identifiable
tangible and intangible assets arising on acquisitions.

In
2002, the Company adopted the Canadian Institute of Chartered Accountants (CICA) new recommendations under Handbook Section 3062, "Goodwill and Other Intangible Assets" for
goodwill and intangible assets. The new rules require non-amortization of existing and future goodwill and intangible assets that meet the criteria for indefinite life and accordingly, the
Company ceased recording goodwill amortization effective August 1, 2001. Instead, the Company must determine at least once annually, whether the fair value of each reporting unit to which
goodwill has been attributed is less than the carrying value of the reporting unit's net assets including goodwill, thus indicating impairment. Any impairments are then recorded as a separate charge
against earnings and a reduction of the carrying value of goodwill.

In
accordance with the new recommendations, the Company prospectively applied these new rules, without restatement of any comparative periods. However, if retroactively applied, net
income attributable to Class A Subordinate Voting and Class B Shares for the comparative years ended July 31, 2001 and July 31, 2000 would have been higher by
$1.7 million and $1.6 million respectively. Similarly, basic and diluted earnings per Class A Subordinate Voting or Class B Share would each have been approximately $0.06
higher in each of the comparative years.

(i)    Other Assets

Costs incurred in establishing new facilities which require substantial time to reach commercial production capability are capitalized as deferred preproduction
costs. Amortization is provided over periods up to five years from the date commercial production is achieved. No amounts were capitalized during the years ended July 31, 2002 and
July 31, 2001.

The
Company accounts for its investments in which it has significant influence on the equity basis.

(j)    Revenue Recognition

Revenue from the sale of manufactured products is recognized when measurable, upon shipment to, or receipt and acceptance by, customers (depending on contractual
terms). Revenues from separately priced engineering services and tooling contracts are recognized primarily on a percentage of completion basis, but in some cases, depending upon the terms of the
contract, the completed contract basis may be applied.

Revenue
and cost of sales are presented on a gross basis in the consolidated statements of income when the Company is acting as principal and is subject to the significant risks and
rewards of the business. Otherwise, components of revenues and related costs are presented on a net basis.

(k)  Preproduction Costs Related to Long-Term Supply Agreements

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

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

51

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(l)    Government Financing

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

(m)  Research and Development

The Company carries out various applied research and development (R&D) programs, certain of which are partially or fully funded by governments or by customers of
the Company. Funding received is accounted for using the cost reduction approach. Research costs are expensed as incurred. Development costs are expensed as incurred, unless they meet the criteria
under generally accepted accounting principles for deferral and amortization.

(n)  Income Taxes

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

(o)  Stock-Based Compensation

The Company has two stock-based compensation plans which are described in Note 11. Compensation expense is recorded under the non-employee
director share-based compensation plan as described in Note 11(c). No compensation expense is recognized under the incentive stock option plan when stock options are granted to employees or
directors, unless they have intrinsic value at the time they are granted. Consideration paid by employees or directors on the exercise of stock options is credited to Class A Subordinate Voting
Shares.

(p)  Post Retirement Medical Benefits

The Company provides a defined benefit post-retirement medical benefits plan covering eligible employees and retirees. The cost of post retirement
medical benefits is determined using the projected benefit method prorated based on employment services and is expensed as employment services are rendered. Past service costs which arose upon
introduction of the plan are being amortized to income over the employees' expected average remaining service lives.

(q)  Earnings per Class A Subordinate Voting Share or Class B Share

Basic earnings per Class A Subordinate Voting Share or Class B Share are calculated using the weighted average number of Class A Subordinate
Voting Shares outstanding during the year, plus the weighted average number of Class B Shares outstanding during the year.

Diluted
earnings per Class A Subordinate Voting Share or Class B Share are calculated using the treasury stock method for the determination of the dilutive effect of
outstanding options. Under this method:



52

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CONSOLIDATED BALANCE SHEETS

INCORPORATED UNDER THE LAWS OF ONTARIO

|As at July 31                        |                                   | Note |    | 2002 |         | 2001    |  
|------------------------------------ | --------------------------------- | ---- | -- | ---- | ------- | ------- | -
|
|ASSETS                               |                                   |      |    |      |         |         |  
|Current                              |                                   |      |    |      |         |         |  
|                                     | Cash and cash equivalents         |      |    |      | $       | 176,759 |  
|                                     | Accounts receivable               |      | 18 |      |         | 198,383 |  
|                                     | Inventories                       |      | 4  |      |         | 105,829 |  
|                                     | Future tax assets                 |      | 8  |      |         | 7,141   |  
|                                     | Prepaid expenses and other        |      |    |      |         | 12,279  |  
|                                     |                                   |      |    |      |         |         |  
|                                     |                                   |      |    |      | 500,391 |         |  
|                                     |                                   |      |    |      |         |         |  
|Capital assets                       |                                   | 5,18 |    |      | 429,626 |         |  
|                                     |                                   |      |    |      |         |         |  
|Goodwill                             |                                   | 6    |    |      | 20,774  |         |  
|                                     |                                   |      |    |      |         |         |  
|Other assets                         |                                   | 7    |    |      | 8,603   |         |  
|                                     |                                   |      |    |      |         |         |  
|                                     |                                   |      |    | $    | 959,394 |         | $
|                                     |                                   |      |    |      |         |         |  
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                   |      |    |      |         |         |  
|Current                              |                                   |      |    |      |         |         |  
|                                     | Bank indebtedness                 |      | 9  |      | $       | 30,053  |  
|                                     | Accounts payable                  |      | 18 |      |         | 106,316 |  
|                                     | Accrued salaries and wages        |      | 10 |      |         | 42,128  |  
|                                     | Other accrued liabilities         |      | 18 |      |         | 36,139  |  
|                                     | Income taxes payable              |      | 8  |      |         | 7,448   |  
|Future tax liabilities               |                                   | 8    |    |      | 19,368  |         |  
|Long-term debt due within one year   |                                   | 9    |    |      | 4,420   |         |  
|                                     |                                   |      |    |      |         |         |  
|                                     |                                   |      |    |      | 245,872 |         |  
|                                     |                                   |      |    |      |         |         |  
|                                     | Long-term debt                    |      | 9  |      |         | 75,172  |  
|                                     |                                   |      |    |      |         |         |  
|                                     | Future tax liabilities            |      | 8  |      |         | 19,144  |  
|                                     |                                   |      |    |      |         |         |  
|Shareholders'equity                  |                                   |      |    |      |         |         |  
|                                     | Class A Subordinate Voting Shares |      | 11 |      |         | 287,027 |  
|                                     | Class B Shares                    |      | 11 |      |         | 2,583   |  
|                                     | Retained earnings                 |      |    |      |         | 317,579 |  
|                                     | Currency translation adjustment   |      | 14 |      |         | 12,017  |  
|                                     |                                   |      |    |      |         |         |  
|                                     |                                   |      |    |      | 619,206 |         |  
|                                     |                                   |      |    |      |         |         |  
|                                     |                                   |      |    | $    | 959,394 |         | $
|                                     |                                   |      |    |      |         |         |  

Commitments
and contingencies (Notes 9, 13 and 19)

See
accompanying notes.

On
behalf of the Board:

|(signed) Belinda StronachDirector |  | (signed) Manfred GinglDirector
|--------------------------------- |  | ------------------------------

53

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CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

|Years ended July 31                                                                                               |         | Note  |    | 2002 |           | 2001   |   | 2000      |       
|----------------------------------------------------------------------------------------------------------------- | ------- | ----- | -- | ---- | --------- | ------ | - | --------- | ------
|
|Sales                                                                                                             |         | 18    |    | $    | 1,341,616 |        | $ | 1,202,144 |       
|                                                                                                                  |         |       |    |      |           |        |   |           |       
|Cost of goods sold                                                                                                |         | 10,18 |    |      | 1,047,294 |        |   | 931,896   |       
|Selling, general and administrative                                                                               |         | 14,18 |    |      | 85,283    |        |   | 77,414    |       
|Depreciation and amortization                                                                                     |         | 6     |    |      | 58,663    |        |   | 51,646    |       
|Affiliation fees and other charges                                                                                |         | 18    |    |      | 18,251    |        |   | 15,271    |       
|Interest, net                                                                                                     |         | 9,18  |    |      | 4,013     |        |   | 1,697     |       
|                                                                                                                  |         |       |    |      |           |        |   |           |       
|Income before income taxes                                                                                        |         |       |    |      | 128,112   |        |   | 124,220   |       
|Income taxes                                                                                                      |         | 8     |    |      | 44,272    |        |   | 35,425    |       
|                                                                                                                  |         |       |    |      |           |        |   |           |       
|Net income attributable to Class A Subordinate Voting Shares and Class B Shares                                   |         |       |    |      | 83,840    |        |   | 88,795    |       
|Retained earnings, beginning of year                                                                              |         |       |    |      | 252,435   |        |   | 186,554   |       
|Dividends                                                                                                         |         |       |    |      | (18,696   | )      |   | (18,552   | )     
|Cumulative adjustment for change in accounting policy                                                             |         | 8     |    |      |          |        |   | (3,945    | )     
|Surrender of stock options                                                                                        |         | 11    |    |      |          |        |   | (417      | )     
|                                                                                                                  |         |       |    |      |           |        |   |           |       
|Retained earnings, end of year                                                                                    |         |       |    | $    | 317,579   |        | $ | 252,435   |       
|                                                                                                                  |         |       |    |      |           |        |   |           |       
|Earnings per Class A Subordinate
Voting Share or Class B Share                                                    |         |       |    |      |           |        |   |           |       
|                                                                                                                  | Basic   |       | 12 |      | $         | 2.85   |   | $         | 3.04  
|                                                                                                                  | Diluted |       | 12 |      | $         | 2.81   |   | $         | 3.00  
|                                                                                                                  |         |       |    |      |           |        |   |           |       
|Average number of Class A Subordinate Voting Shares and Class B Shares outstanding during the year (in thousands) |         |       |    |      |           |        |   |           |       
|                                                                                                                  | Basic   |       | 12 |      |           | 29,454 |   |           | 29,214
|                                                                                                                  | Diluted |       | 12 |      |           | 29,829 |   |           | 29,558
|                                                                                                                  |         |       |    |      |           |        |   |           |       

See
accompanying notes.

53

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES

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

2.    JOINTLY CONTROLLED ENTITIES

The consolidated financial statements include the Company's proportionate share of the revenues, expenses, assets and liabilities of its jointly controlled
entities as follows:

Results of Operations

|(Canadian dollars in thousands)                         |  | 2002 |         | 2001 |   | 2000   
|------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|Sales                                                   |  | $    | 433,149 |      | $ | 383,281
|Cost of goods sold, other expenses and income taxes (i) |  |      | 385,855 |      |   | 341,805
|                                                        |  |      |         |      |   |        
|Net income, after tax allocation                        |  | $    | 47,294  |      | $ | 41,476 
|                                                        |  |      |         |      |   |        

Financial Position

|(Canadian dollars in thousands)      |  | 2002 |         | 2001
|------------------------------------ |  | ---- | ------- | ----
|ASSETS                               |  |      |         |     
|Current assets                       |  | $    | 143,831 |     
|Long-term assets                     |  |      | 51,076  |     
|                                     |  |      |         |     
|Total assets                         |  | $    | 194,907 |     
|                                     |  |      |         |     
|LIABILITIES AND EQUITY               |  |      |         |     
|Current liabilities                  |  | $    | 60,770  |     
|Other liabilities                    |  |      | 150     |     
|Loans from partners and shareholders |  |      | 47,089  |     
|Equity (ii)                          |  |      | 86,898  |     
|                                     |  |      |         |     
|Total liabilities and equity         |  | $    | 194,907 |     
|                                     |  |      |         |     

Statements of Cash Flows

|(Canadian dollars in thousands) |                            | 2002 |        | 2001    |   | 2000   |        
|------------------------------- | -------------------------- | ---- | ------ | ------- | - | ------ | -------
|Cash provided from (used for):  |                            |      |        |         |   |        |        
|                                | Operating activities       |      | $      | 67,529  |   | $      | 43,290 
|                                | Investing activities (iii) |      |        | (21,473 | ) |        | (7,920 
|                                | Financing activities (iv)  |      |        | (48,619 | ) |        | (19,694
|                                |                            |      |        |         |   |        |        
|                                |                            | $    | (2,563 | )       | $ | 15,676 |        
|                                |                            |      |        |         |   |        |        

---

55

---

Pursuant to agreements amongst the partners of one of the jointly controlled entities, net income is to be distributed annually to the partners
and each partner is required to loan back to the entity approximately 35% of such distribution, unless otherwise determined by the management committee of the entity. No amounts were required to be
loaned back during the years ended July 31, 2002, 2001 or 2000. The management committee is responsible for overseeing and directing the operations and management of the entity and is comprised
of four members of which the Company is entitled to appoint two. The repayment of this entity's partners' capital of $7.4 million
(2001  $7.4 million) and loans are subject to the approval of the management committee.

In
another jointly controlled entity, shareholders' loans total $30.1 million at July 31, 2002 (2001  $10.2 million). These
loans were interest bearing at the rate of 10% per annum and were repayable on August 1, 2002. Effective August 1, 2002, the terms of these shareholders' loans were amended to adjust the
rate of interest to prime plus 2%, payable monthly, with principal repayment due on August 1, 2004.

3.    BUSINESS ACQUISITIONS

Fiscal 2002 Acquisition

Effective December 31, 2001, the Company completed the acquisition of an additional 30% interest in one of its jointly controlled entities for nominal cash
consideration, increasing the Company's ownership to 75%. The transaction was accounted for using the purchase method. The net effect on the Company's balance sheet was a net decrease in working
capital of $4.9 million (including cash acquired of $0.6 million), an increase in capital assets of $4.7 million, additional long-term debt acquired of
$0.4 million, and an increase in goodwill of $0.6 million. Pursuant to agreements executed on the purchase, the only other remaining shareholder of the jointly controlled entity has the
option to purchase an additional 25% equity ownership interest from the Company at any time prior to August 1, 2004 at a formula price. While the option is outstanding, the Company and the
remaining shareholder each retain the right to nominate one of the two directors composing the board of directors of this jointly controlled entity.

Acquisitions in Prior Years

Under the terms of the acquisition of Triam Automotive Corporation (Sterling Heights) in October 1998, the Company agreed to pay an additional amount not
to exceed $4 million in respect of the 5 year period commencing February 1, 1998 if Sterling Heights achieves certain predetermined levels of earnings. To date, payments totaling
$3.2 million (2001  $2.4 million) have been made as earnings have exceeded the predetermined levels in each of the first four years.

Similarly,
under the terms of the acquisition of Hanwha Automotive Components Corporation (HACC) in January 1999, the Company agreed to pay additional amounts not to exceed
US$2 million in respect of the 4 year period commencing January 1, 1999 equal to 50% of the amount that HACC's adjusted earnings exceed predetermined thresholds. To date, no
amounts have been paid or accrued.

56

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4.    INVENTORIES

Inventories consist of:

|(Canadian dollars in thousands) |  | 2002 |         | 2001
|------------------------------- |  | ---- | ------- | ----
|Raw materials and supplies      |  | $    | 38,295  |     
|Work-in-process                 |  |      | 16,887  |     
|Finished goods                  |  |      | 24,943  |     
|Tooling and engineering (i)     |  |      | 25,704  |     
|                                |  |      |         |     
|                                |  | $    | 105,829 |     
|                                |  |      |         |     

---

5.    CAPITAL ASSETS

Capital assets consist of:

|(Canadian dollars in thousands)        |  | 2002 |         | 2001
|-------------------------------------- |  | ---- | ------- | ----
|Land                                   |  | $    | 30,450  |     
|Buildings                              |  |      | 104,415 |     
|Machinery and equipment (i)            |  |      | 510,346 |     
|Capital expenditures in progress (iii) |  |      | 60,228  |     
|                                       |  |      |         |     
|                                       |  |      | 705,439 |     
|Accumulated depreciation (i), (ii)     |  |      | 275,813 |     
|                                       |  |      |         |     
|                                       |  | $    | 429,626 |     
|                                       |  |      |         |     

---

6.    GOODWILL

At July 31, 2002, the Company had consolidated goodwill, recorded at carrying value, totaling $20.8 million
(2001  $19.2 million). As fully described in the Company's Significant Accounting Policies preceding these consolidated financial statements, the new CICA
non-amortization and impairment rules for existing goodwill were adopted prospectively and accordingly, the Company ceased recording amortization of goodwill effective August 1,
2001. In 2001, $1.7 million (2000  $1.6 million) of goodwill amortization was recorded. The ending carrying value of goodwill at July 31,
2001 includes accumulated amortization of $6.8 million.

During
the year, the Company recorded an additional $1.4 million of goodwill on current year acquisitions and earnout provisions associated with prior year acquisitions as
described in Note 3.

During
2002, the Company assessed the fair value of the reportable segments to which the underlying goodwill is attributable and determined that no charge for impairment of goodwill is
required for the year ended July 31, 2002.

57

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7.    OTHER ASSETS

Other assets consist of:

|(Canadian dollars in thousands)                                                          |  | 2002 |       | 2001
|---------------------------------------------------------------------------------------- |  | ---- | ----- | ----
|Deferred preproduction costs (net of accumulated amortization of $4,680 (2001  $3,343)) |  | $    | 2,006 |     
|Long-term receivables                                                                    |  |      | 2,228 |     
|Other                                                                                    |  |      | 4,369 |     
|                                                                                         |  |      |       |     
|                                                                                         |  | $    | 8,603 |     
|                                                                                         |  |      |       |     

8.    INCOME TAXES

Effective
August 1, 2000, the Company adopted the new recommendations of the CICA for the accounting and disclosure of income taxes. The Company adopted these recommendations
prospectively without restating the financial statements of any prior periods. Accordingly, the fiscal 2000 comparative amounts presented were determined using the deferral method of accounting for
income taxes.

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

|                                                                  |  | 2002  |   | 2001  |   | 2000  |  
|----------------------------------------------------------------- |  | ----- | - | ----- | - | ----- | -
|Canadian statutory income tax rate                                |  | 40.0% |   | 42.9% |   | 44.5% |  
|Manufacturing and processing profits deduction                    |  | (6.2  | ) | (8.2  | ) | (8.8  | )
|                                                                  |  |       |   |       |   |       |  
|Expected income tax rate                                          |  | 33.8  |   | 34.7  |   | 35.7  |  
|Tax refunds on profit distributions (i)                           |  |      |   | (7.7  | ) |      |  
|Foreign rate differentials                                        |  | (0.5  | ) | 0.7   |   | 0.4   |  
|Losses not tax benefited in excess of (less than) losses utilized |  | 1.3   |   | (0.1  | ) | 0.4   |  
|Other                                                             |  |      |   | 0.9   |   |      |  
|                                                                  |  |       |   |       |   |       |  
|Effective income tax rate                                         |  | 34.6% |   | 28.5% |   | 36.5% |  
|                                                                  |  |       |   |       |   |       |  

---

58

---

The
details of the income tax provision are as follows:

|(Canadian dollars in thousands) |                        | 2002 |        | 2001   |   | 2000   
|------------------------------- | ---------------------- | ---- | ------ | ------ | - | -------
|Current provision               |                        |      |        |        |   |        
|                                | Canadian federal taxes |      | $      | 17,329 |   | $      
|                                | Provincial taxes       |      |        | 10,750 |   |        
|                                | Foreign taxes          |      |        | 7,872  |   |        
|                                |                        |      |        |        |   |        
|                                |                        | $    | 35,951 |        | $ | 46,336 
|                                |                        |      |        |        |   |        
|Future provision (recovery)     |                        |      |        |        |   |        
|                                | Canadian federal taxes |      | $      | 4,645  |   | $      
|                                | Provincial taxes       |      |        | 2,445  |   |        
|                                | Foreign taxes          |      |        | 1,231  |   |        
|                                |                        |      |        |        |   |        
|                                |                        | $    | 8,321  |        | $ | (10,911
|                                |                        |      |        |        |   |        
|                                |                        | $    | 44,272 |        | $ | 35,425 
|                                |                        |      |        |        |   |        

Future
income taxes have been provided (recovered) on temporary differences which consist of the following:

|(Canadian dollars in thousands)                                 |  | 2002 |       | 2001 |   | 2000    |  
|--------------------------------------------------------------- |  | ---- | ----- | ---- | - | ------- | -
|(Canadian dollars in thousands)                                 |  |      |       |      |   |         |  
|Tax deferred income                                             |  | $    | 5,383 |      | $ | (1,080  | )
|Tax refunds on profit distributions                             |  |      | 3,502 |      |   | (9,408  | )
|Tax depreciation in excess of book depreciation                 |  |      | (151  | )    |   | 459     |  
|Reduction in enacted tax rates                                  |  |      | (670  | )    |   |        |  
|Book amortization of deferred preproduction costs less than tax |  |      | (455  | )    |   | (464    | )
|Other                                                           |  |      | 712   |      |   | (418    | )
|                                                                |  |      |       |      |   |         |  
|                                                                |  | $    | 8,321 |      | $ | (10,911 | )
|                                                                |  |      |       |      |   |         |  

59

---

Future
tax assets and liabilities consist of the following:

|(Canadian dollars in thousands)   |                                                           | 2002 |        | 2001  
|--------------------------------- | --------------------------------------------------------- | ---- | ------ | ------
|Future tax assets                 |                                                           |      |        |       
|                                  | Tax refunds on profit distributions                       |      | $      | 7,141 
|                                  |                                                           |      |        |       
|Current future tax liabilities    |                                                           |      |        |       
|                                  | Tax depreciation in excess of book depreciation           |      | $      | 1,169 
|                                  | Tax deferred income (i)                                   |      |        | 16,747
|                                  | Net preproduction costs book value in excess of tax value |      |        | 455   
|                                  | Other                                                     |      |        | 997   
|                                  |                                                           |      |        |       
|                                  |                                                           | $    | 19,368 |       
|                                  |                                                           |      |        |       
|Long-term future tax liabilities  |                                                           |      |        |       
|                                  | Tax depreciation in excess of book depreciation           |      | $      | 15,217
|                                  | Tax deferred income (i)                                   |      |        |      
|                                  | Net preproduction costs book value in excess of tax value |      |        | 227   
|                                  | Other                                                     |      |        | 3,700 
|                                  |                                                           |      |        |       
|                                  |                                                           | $    | 19,144 |       
|                                  |                                                           |      |        |       
|Net future income tax liabilities |                                                           | $    | 31,371 |       
|                                  |                                                           |      |        |       

---

Income
taxes paid in cash were $38.8 million for 2002 (2001  $46.5 million;
2000  $31.9 million).

At
July 31, 2002, certain subsidiaries of the Company have tax loss carryforwards, in various jurisdictions, of approximately $31.6 million. Of these losses,
$25.8 million have no expiry date and $5.8 million expire between 2004 and 2009. The tax benefits of the full $31.6 million of these losses have not been recognized in the
consolidated financial statements.

9.    DEBT

The
Company's long-term debt consists of the following:

|(Canadian dollars in thousands)              |  | 2002 |        | 2001
|-------------------------------------------- |  | ---- | ------ | ----
|6.22% Senior Unsecured Notes (Note 9(b))     |  | $    | 60,000 |     
|Bank term debt (Note 9(c))                   |  |      | 14,878 |     
|Obligations under capital leases (Note 9(d)) |  |      | 3,585  |     
|Other                                        |  |      | 1,129  |     
|                                             |  |      |        |     
|                                             |  |      | 79,592 |     
|Less amounts due within one year             |  |      | 4,420  |     
|                                             |  |      |        |     
|                                             |  | $    | 75,172 |     
|                                             |  |      |        |     

60

---

The
$60-million 6.22% Senior Unsecured Notes (the Notes) are due May 25, 2006. These Notes require the Company to maintain certain covenants.

Bank
term debt consists of amounts originally denominated in the following currencies or legacy currencies:

|(Canadian dollars in thousands) |  | Final maturity |  | Weighted average interest rate |  | 2002 |        | 2001
|------------------------------- |  | -------------- |  | ------------------------------ |  | ---- | ------ | ----
|Austrian schillings (i)         |  | 2003 - 2009    |  | 1.95%                          |  | $    | 11,191 |     
|German deutschmarks (ii)        |  | 2003 - 2008    |  | 6.71%                          |  |      | 2,200  |     
|Other                           |  | 2008           |  | 3.80%                          |  |      | 1,487  |     
|                                |  |                |  |                                |  |      |        |     
|                                |  |                |  |                                |  | $    | 14,878 |     
|                                |  |                |  |                                |  |      |        |     

Long-term
debt of $1.1 million (AS10 million) (2001  $2.0 million (AS20 million)) is advanced under a total
line of $1.1 million. Interest is currently payable at Euribor (Euro Interbank Offered Rate) plus 0.75%. The loan is repayable in equal semi-annual installments and matures
July 1, 2003.

Long-term
debt of $0.4 million (AS3.1 million) (2001  $1.1 million (AS11.7 million)) is advanced under a
total line of $0.4 million (2001  $1.1 million). Interest is payable at a fixed rate of 4.38%. The loan is repayable in equal
semi-annual installments and matures December 31, 2003.

Under
a banking arrangement which was conditional on the attainment of certain employment and capital expenditure requirements, only long-term debt of $9.7 million
(AS85 million) (2001  $8.3 million (AS85 million)) has been advanced under potential lines totaling $22.8 million
(AS200 million) as conditions required for further funds under this arrangement have not been satisfied. Interest is currently payable at a fixed rate of 1.5%. The loan is repayable in equal
semi-annual installments beginning July 1, 2003 and matures January 1, 2009. Effective July 1, 2003 through to maturity, interest is payable at a fixed rate of 2.95%.
A portion of the loan is collateralized by land and buildings of certain subsidiaries.

Bank
term debt of $2.2 million (DM2.7 million) (2001  $2.4 million (DM3.4 million)) is advanced under total lines of
$2.2 million (2001  $2.4 million). Interest is currently payable at fixed rates ranging from 3.83% to 7.32%. The principal amounts are repayable at
various intervals over the next six years. This debt is collateralized by land, building and specific assets of certain subsidiaries.

Obligations
under capital leases consist of amounts originally denominated in the following currencies or legacy currencies:

|(Canadian dollars in thousands) |  | Final maturity |  | Weighted average interest rate |  | 2002 |       | 2001
|------------------------------- |  | -------------- |  | ------------------------------ |  | ---- | ----- | ----
|U.S. dollars (i)                |  | 2003 - 2005    |  | 7.27%                          |  | $    | 2,516 |     
|German deutschmarks             |  | 2006           |  | 5.75%                          |  |      | 1,029 |     
|Korean won (ii)                 |  | 2003 - 2004    |  | 12.87%                         |  |      | 40    |     
|                                |  |                |  |                                |  |      |       |     
|                                |  |                |  |                                |  | $    | 3,585 |     
|                                |  |                |  |                                |  |      |       |     

---

61

---

Future
annual principal repayments on long-term debt are estimated to be as follows for the years ending July 31:

|(Canadian dollars in thousands)
|-------------------------------
|2003                           
|2004                           
|2005                           
|2006                           
|2007                           
|Thereafter                     
|                               
|                               
|                               



Net
interest expense (income) includes:

|(Canadian dollars in thousands)                     |  | 2002 |       | 2001 |   | 2000   |  
|--------------------------------------------------- |  | ---- | ----- | ---- | - | ------ | -
|Interest on long-term debt                          |  | $    | 4,641 |      | $ | 4,807  |  
|Other interest income, net  external               |  |      | (656  | )    |   | (3,223 | )
|Interest expense  Magna International Inc. (Magna) |  |      | 28    |      |   | 113    |  
|                                                    |  |      |       |      |   |        |  
|Interest, net                                       |  | $    | 4,013 |      | $ | 1,697  |  
|                                                    |  |      |       |      |   |        |  

Net
interest paid in cash was $4.0 million for 2002 (2001  $1.9 million;
2000  $3.0 million).

62

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10.  POST-RETIREMENT MEDICAL BENEFITS

The Company provides a post-retirement medical benefits plan covering eligible employees and retirees. Retirees sixty-years of age and older with ten
or more years of service are eligible for benefits. In addition, existing retirees as at the date of plan implementation that meet the above criteria are also eligible for benefits. Benefits are
capped based on years of service.

The
cost of benefits earned by employees is actuarially determined using the projected benefit method prorated based on service and management's best estimate of compensation increases,
retirement ages of employees, future termination levels and expected returns on plan assets.

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

|                              |  |     
|----------------------------- |  | ----
|Discount rate                 |  | 6.8%
|Rate of compensation increase |  | 4.0%

The
projected benefit obligation and the net amount included in accrued salaries and wages in the consolidated balance sheets is calculated as follows:

|(Canadian dollars in thousands)                          |  | 2002 |        | 2001 |  
|-------------------------------------------------------- |  | ---- | ------ | ---- | -
|Balance, beginning of year                               |  | $    | 1,973  |      | $
|Past service obligation arising on plan introduction     |  |      |       |      |  
|Current service costs                                    |  |      | 220    |      |  
|Interest costs on projected benefit obligation           |  |      | 141    |      |  
|Actuarial gains and changes in actuarial assumptions     |  |      | 283    |      |  
|Benefits paid                                            |  |      | (10    | )    |  
|                                                         |  |      |        |      |  
|Unfunded obligation                                      |  |      | 2,607  |      |  
|Unrecognized past service costs                          |  |      | (1,902 | )    |  
|Unrecognized actuarial gains                             |  |      | 192    |      |  
|                                                         |  |      |        |      |  
|Net amount recognized in the consolidated balance sheets |  | $    | 897    |      | $
|                                                         |  |      |        |      |  

The
calculation of the net periodic cost is as follows:

|(Canadian dollars in thousands)                |  | 2002 |     | 2001 |  
|---------------------------------------------- |  | ---- | --- | ---- | -
|Current service costs                          |  | $    | 220 |      | $
|Interest costs on projected benefit obligation |  |      | 141 |      |  
|Amortization of past service costs             |  |      | 117 |      |  
|Amortization of experience gains               |  |      | (16 | )    |  
|                                               |  |      |     |      |  
|                                               |  | $    | 462 |      | $
|                                               |  |      |     |      |  

11.  CAPITAL STOCK

Class A
Subordinate Voting Shares without par value (unlimited amount authorized) have the following attributes:



63

---



Class B
Shares without par value (unlimited amount authorized) have the following attributes:



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

Outstanding
Class A Subordinate Voting Shares and Class B Shares included in shareholders' equity of the Company consists of:

|                                                                           |  | Class A Subordinate Voting Shares |   | Class B Shares
|-------------------------------------------------------------------------- |  | --------------------------------- | - | --------------
|
|Balance, July 31, 1999                                                     |  | 14,367,779                        |   | $             
|Issuance of Class A Subordinate Voting Shares to Magna (i)                 |  | 4,352,644                         |   |               
|Cancellation of Class A Subordinate Voting Shares (i)                      |  | (4,352,644                        | ) |               
|Exercise of Incentive Stock Options (Note 11(b))                           |  | 532,000                           |   |               
|                                                                           |  |                                   |   |               
|Balance, July 31, 2000                                                     |  | 14,899,779                        |   |               
|Exercise of Incentive Stock Options (Note 11(b))                           |  | 142,600                           |   |               
|                                                                           |  |                                   |   |               
|Balance, July 31, 2001                                                     |  | 15,042,379                        |   |               
|Issuance of Class A Subordinate Voting Shares through Public Offering (ii) |  | 2,850,000                         |   |               
|Exercise of Incentive Stock Options (Note 11(b))                           |  | 182,400                           |   |               
|                                                                           |  |                                   |   |               
|Balance, July 31, 2002                                                     |  | 18,074,779                        |   | $             
|                                                                           |  |                                   |   |               

---

|(Canadian dollars in thousands)                       | 
|----------------------------------------------------- | 
|Total proceeds on issue of 2,850,000 shares at $35.15 | 
|Underwriter's fee                                     | 
|Other expenses of the issue                           | 
|Tax savings in respect of the above fee and expenses  | 
|                                                      | 
|Net proceeds                                          | 
|                                                      | 

64

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Under
the Company's amended and restated Incentive Stock Option Plan, the Company may grant options to purchase Class A Subordinate Voting Shares to present and future officers,
directors, other full-time employees or consultants of the Company. The maximum number of shares reserved to be issued for options is 3,000,000 subject to certain adjustments. The number
of unoptioned shares available to be reserved at July 31, 2002 was 44,500 (2001  44,500). If, at the Company's option, stock options are repurchased from
employees or directors, the excess of consideration paid over the exercise price of the stock options cancelled is charged to retained earnings.

All
options granted are for a term not exceeding 10 years from the date of grant. In general, management options vest 20% on the date of the grant and 20% on August 1 of
each of the four calendar years following the grant date. However, 70,000 options granted to directors in 2000 vested 50% on the grant date with the remaining 50% vesting on August 1, 2001, and
300,000 options granted to Stronach & Co. (S & Co) vested 162/3% on October 25, 2000 and 162/3% on each of the following five anniversaries of
this date. All options allow the holder to purchase Class A Subordinate Voting Shares at a price equal to or greater than the market price of such shares at the date of the grant.

The
following is a continuity schedule of the options outstanding:

|                       |  | Number of options |   | Range of exercise price |  | Weighted average exercise price |       | Options exercisable |          
|---------------------- |  | ----------------- | - | ----------------------- |  | ------------------------------- | ----- | ------------------- | ---------
|Balance, July 31, 1999 |  | 1,533,000         |   | $10.50 - $22.50         |  | $                               | 11.72 |                     | 1,113,500
|Granted                |  | 545,500           |   | $19.00 - $26.00         |  | $                               | 25.13 |                     |          
|Exercised              |  | (532,000          | ) | $10.50                  |  | $                               | 10.50 |                     | (532,000 
|Surrendered (i)        |  | (325,000          | ) | $10.50                  |  | $                               | 10.50 |                     | (325,000 
|Vested (ii)            |  |                   |   |                         |  |                                 |       |                     | 436,600  
|                       |  |                   |   |                         |  |                                 |       |                     |          
|Balance, July 31, 2000 |  | 1,221,500         |   | $10.50 - $26.00         |  | $                               | 18.56 |                     | 693,100  
|Granted (iii)          |  | 432,500           |   | $26.45 - $29.40         |  | $                               | 27.35 |                     |          
|Exercised              |  | (142,600          | ) | $10.50 - $26.00         |  | $                               | 12.57 |                     | (142,600 
|Surrendered (iv)       |  | (73,000           | ) | $10.50 - $26.00         |  | $                               | 16.41 |                     | (73,000  
|Cancelled              |  | (5,000            | ) | $26.00                  |  | $                               | 26.00 |                     | (5,000   
|Vested                 |  |                   |   |                         |  |                                 |       |                     | 151,500  
|                       |  |                   |   |                         |  |                                 |       |                     |          
|Balance, July 31, 2001 |  | 1,433,400         |   | $10.50 - $29.40         |  | $                               | 21.89 |                     | 624,000  
|Exercised              |  | (182,400          | ) | $10.50 - $26.00         |  | $                               | 12.03 |                     | (182,400 
|Vested                 |  |                   |   |                         |  |                                 |       |                     | 240,600  
|                       |  |                   |   |                         |  |                                 |       |                     |          
|Balance, July 31, 2002 |  | 1,251,000         |   | $10.50 $29.40          |  | $                               | 23.33 |                     | 682,200  
|                       |  |                   |   |                         |  |                                 |       |                     |          

---

65

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The following table summarizes the significant ranges of outstanding and exercisable options held by directors, officers and employees as of
July 31, 2002:

|                                            |  | Options outstanding |       | 
|------------------------------------------- |  | ------------------- | ----- | 
|
|                                            |  | $                   | 10.50 | 
|                                            |  | $                   | 10.50 | 
|                                            |  | $                   | 17.25 | 
|                                            |  | $                   | 19.00 | 
|                                            |  | $                   | 21.70 | 
|                                            |  | $                   | 22.50 | 
|                                            |  | $                   | 26.00 | 
|                                            |  | $                   | 26.45 | 
|                                            |  | $                   | 29.40 | 
|                                            |  |                     |       | 
|                                            |  |                     |       | 
|                                            |  |                     |       | 
|Weighted average exercise price             |  |                     |       | 
|                                            |  |                     |       | 
|Weighted average remaining contractual life |  |                     |       | 
|                                            |  |                     |       | 

Under
this plan, established during fiscal 2000, non-employee directors can elect to receive a portion of their annual retainers and other Board-related compensation in the
form of deferred share units (DSUs) which are credited to the director's account, and the Company records a liability. The number of DSUs issued is based upon the market value of the Company's shares
at each allocation date. One DSU has a cash value equal to the market price of one of the Company's Class A Subordinate Voting Shares. Within a specified time after retirement,
non-employee directors receive a cash payment equal to the market value of their DSUs. During 2002, $0.3 million (2001  $0.2 million)
was recorded as compensation expense (including revaluation of the DSUs to their fair values at July 31, 2002) under this plan. At July 31, 2002, there were 23,185 DSUs
(2001  15,307) having a total value of $0.7 million (2001  $0.4 million) that were issued and outstanding.

The
following table presents the maximum number of shares that would be outstanding if all the outstanding options at July 31, 2002 were exercised:

|Number of shares                                              
|--------------------------------------------------------------
|Class A Subordinate Voting Shares outstanding at July 31, 2002
|Class B Shares outstanding at July 31, 2002                   
|Options to purchase Class A Subordinate Voting Shares         
|                                                              
|                                                              
|                                                              

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12.  EARNINGS PER CLASS A SUBORDINATE VOTING SHARE OR CLASS B SHARE

The following table presents the reconciliation from the weighted average number of Class A Subordinate Voting Shares and Class B Shares outstanding
to the weighted average number of these shares outstanding on a diluted basis:

|(in thousands)                                                                                                        |                                                             | 2002   |     | 2001   |     | 2000  
|--------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------ | --- | ------ | --- | ------
|Average number of Class A Subordinate Voting Shares and Class B Shares outstanding during the year                    |                                                             | 29,454 |     | 29,214 |     | 28,766
|Effect of dilutive securities:                                                                                        |                                                             |        |     |        |     |       
|                                                                                                                      | Stock options to purchase Class A Subordinate Voting Shares |        | 375 |        | 344 |       
|                                                                                                                      |                                                             |        |     |        |     |       
|Average number of Class A Subordinate Voting Shares and Class B Shares outstanding during the year on a diluted basis |                                                             | 29,829 |     | 29,558 |     | 29,322
|                                                                                                                      |                                                             |        |     |        |     |       



67

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13.  FINANCIAL INSTRUMENTS

The
Company operates globally, which gives rise to a risk that its earnings and cash flows may be adversely impacted by fluctuations in foreign exchange. The Company, including LAP,
utilizes foreign exchange forward contracts to manage foreign exchange risk from its underlying customer contracts. In particular, the Company uses foreign exchange forward contracts for the sole
purpose of hedging a significant portion of its projected foreign currency inflows and outflows, consisting primarily of US dollar and euro denominated contractual commitments to deliver products to
the Company's customers or buy products from the Company's suppliers in addition to other anticipated transactions expected to be settled in foreign currencies. The Company does not enter into foreign
exchange contracts for speculative purposes.

As
at July 31, 2002, the Company had outstanding foreign exchange forward contracts representing a commitment to sell approximately US$102.1 million and 19.8 million
euros, at weighted average rates of exchange of CDN$1.55 and CDN$1.52, respectively, and to buy approximately US$90.3 million and 24.6 million euros at weighted average rates of exchange
of CDN$1.47 and CDN$1.41, respectively. These contracts mature over the next five years as follows:

|     |  | For Canadian dollars
|---- |  | --------------------
|
|2003 |  | US$(46.3            
|2003 |  | 37.3                
|2004 |  | (21.6               
|2004 |  | 28.6                
|2005 |  | (15.0               
|2005 |  | 17.6                
|2006 |  | (9.6                
|2006 |  | 4.7                 
|2007 |  | (9.6                
|2007 |  | 2.1                 
|     |  |                     
|     |  | US$(11.8            

The
fair values of foreign exchange forward contracts represent an approximation of the amounts the Company would have paid to or received from counterparties to unwind its positions at
July 31, 2002. The fair value of the Company's net benefit for all foreign exchange forward contracts at July 31, 2002 was approximately $9.2 million
(2001  $7.5 million). If these contracts ceased to be effective as hedges (i.e., if the related projected cash flows changed significantly),
previously unrecognized gains or losses pertaining to the portion of the hedging transactions in excess of projected foreign denominated cash flows would be recognized in income at the time this
condition was identified.

The
Company, through one of its jointly controlled entities, has outstanding foreign exchange options that require it to sell 4.6 million euros at a weighted average rate of
US$0.92. The fair value of these options at July 31, 2002 is approximately $0.5 million lower than the carrying value and due to the fact these options do not qualify as part of an
effective hedging relationship, the amount was recorded as a charge against earnings.

To
manage the electricity cost volatility that may arise since the Ontario, Canada hydro electricity market was deregulated in May 2002, the Company entered into a contract to
purchase approximately 131,000 mega-watt hours (MWH) of electricity over a three year period at a weighted average rate of $53.80 per MWH. The mark-to-market fair
value of this contract at July 31, 2002 was not significant.

68

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

Short-term
financial assets and liabilities, including cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable, accrued liabilities and income
taxes payable, are valued at their carrying amounts as presented in the consolidated balance sheets. The carrying values of the amounts are reasonable estimates of fair value due to the short period
to maturity of these financial instruments except for the obligation for the post-retirement medical benefits plan for which the actuarially determined obligation exceeds the carrying
value by $1.7 million as described in Note 10(a).

Fair
value information is not readily available for the Company's long-term monetary assets included in other assets. However, management believes the market value of these
assets approximates their carrying value.

Rates
currently available to the Company for long-term debt with similar terms and remaining maturities have been used to estimate the fair value of the long-term
debt which approximates the carrying value for all years, including the $60 million 6.22% Senior Unsecured Notes at July 31, 2002
(2001  $58.2 million).

The
Company enters into foreign exchange forward contracts to manage foreign currency risk. If the Company did not use forward contracts, its exposure to financial risks would be higher.
The Company does not enter into forward contracts for speculative purposes. The fair values of foreign exchange forward contracts represent an approximation of the amounts that the Company would have
paid to or received from counterparties to unwind its positions prior to maturity. The fair value of the Company's net benefit for all foreign exchange forward contracts, none of which is recorded, is
discussed in Note 13(a).

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

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

Cash
and cash equivalents, which consists of short-term investments, including commercial paper and certified deposits, are only invested in governments and corporations with
a minimum credit rating of R1 (low) by the Dominion Bond Rating Service (DBRS) or its equivalent, and in the United States, banks with a Financial Strength Rating of A by Moody's Investors Service or
its equivalent. Credit risk is further reduced by limiting the amount which is invested in any one government or corporation.

The
Company is also exposed to credit risk from the potential default by any of its counterparties on its foreign exchange forward contracts. The Company mitigates this credit risk by
generally dealing only with counterparties which are banks with a minimum credit rating of A-2 by Standard & Poor's and which are included on an authorized list of counterparties
maintained by the Company. The Company also monitors its relative positions
with each counterparty. The maximum credit risk, based on the theoretical amount, term and exchange rates, amounts to approximately $15.4 million. This risk is divided amongst six financial
institutions. The Company does not anticipate non-performance of contractual obligations by any of the counterparties.

69

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

|                                     |                                                                 |   |         | Fixed interest rate maturing in |   |        |        |   |        
|------------------------------------ | --------------------------------------------------------------- | - | ------- | ------------------------------- | - | ------ | ------ | - | -------
|
|Financial assets                     |                                                                 |   |         |                                 |   |        |        |   |        
|                                     | Cash                                                            |   | $       | 176,759                         |   |        |        |   |        
|                                     | Accounts receivable                                             |   |         |                                 |   |        |        |   |        
|                                     | Other assets                                                    |   |         | 493                             |   | $      | 60     |   | $      
|Financial liabilities                |                                                                 |   |         |                                 |   |        |        |   |        
|                                     | Bank indebtedness                                               |   |         | (30,053                         | ) |        |        |   |        
|                                     | Accounts payable and all other accrued liabilities and payables |   |         |                                 |   |        |        |   |        
|                                     | Long-term debt                                                  |   |         | (3,657                          | ) |        | (2,038 | ) |        
|                                     |                                                                 |   |         |                                 |   |        |        |   |        
|                                     |                                                                 | $ | 143,542 |                                 | $ | (1,978 | )      | $ | (72,304
|                                     |                                                                 |   |         |                                 |   |        |        |   |        
|Average fixed rate of long-term debt |                                                                 |   |         |                                 |   | 3.97   | %      |   | 5.63   
|                                     |                                                                 |   |         |                                 |   |        |        |   |        

14.  CURRENCY TRANSLATION ADJUSTMENT

The following is a continuity schedule of the currency translation adjustment account included as a separate component of shareholders' equity:

|(Canadian dollars in thousands)                                                               |  | 2002 |        | 2001 |  
|--------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | -
|Balance, beginning of year                                                                    |  | $    | (8,436 | )    | $
|Realized translation (gain) loss on the reduction of the net investment in foreign operations |  |      | (185   | )    |  
|Unrealized translation adjustments                                                            |  |      | 20,638 |      |  
|                                                                                              |  |      |        |      |  
|Balance, end of year                                                                          |  | $    | 12,017 |      | $
|                                                                                              |  |      |        |      |  

Unrealized
translation adjustments, which arise on the translation to Canadian dollars of assets and liabilities of the Company's self-sustaining foreign operations, resulted
in an unrealized currency translation gain of $20.6 million (2001  loss of $4.0 million) primarily from the strengthening of the euro and Korean
won against the Canadian dollar, during the year.

The
translation gain of $0.2 million (2001  $3.4 million loss) realized on the reduction of the net investment in foreign operations
was the result of dividend distributions and was recorded in selling, general and administrative expenses.

15.  RESEARCH AND DEVELOPMENT

Gross R&D expenditures for the year ended July 31, 2002 were $24.4 million (2001  $18.9 million;
2000  $19.9 million). These expenditures were partially funded by governments or customers in the amount of $6.2 million
(2001  $6.5 million; 2000  $5.6 million).

70

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16.  DETAILS OF CASH FROM OPERATING ACTIVITIES

Items
not involving current cash flows consist of:

|(Canadian dollars in thousands)                                                              |  | 2002 |        | 2001 |   | 2000   
|-------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | -------
|Depreciation and amortization                                                                |  | $    | 58,663 |      | $ | 51,646 
|Future income taxes                                                                          |  |      | 8,321  |      |   | (10,911
|Realized translation (gains) losses on the reduction of net investment in foreign operations |  |      | (185   | )    |   | 3,372  
|Net periodic cost of post-retirement medical benefits plan                                   |  |      | 462    |      |   | 445    
|Other                                                                                        |  |      | 2,136  |      |   | 1,036  
|                                                                                             |  |      |        |      |   |        
|                                                                                             |  | $    | 69,397 |      | $ | 45,588 
|                                                                                             |  |      |        |      |   |        

The
net change in non-cash working capital, net of foreign exchange fluctuations, consists of:

|(Canadian dollars in thousands)                |  | 2002 |         | 2001 |   | 2000    |  
|---------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|Accounts receivable                            |  | $    | (24,017 | )    | $ | (35,906 | )
|Inventories                                    |  |      | (9,403  | )    |   | (12,357 | )
|Prepaid expenses and other                     |  |      | (1,068  | )    |   | (448    | )
|Accounts payable and other accrued liabilities |  |      | 22,465  |      |   | (9,571  | )
|Accrued salaries and wages                     |  |      | 4,226   |      |   | 1,150   |  
|Income taxes payable                           |  |      | (1,714  | )    |   | (3,725  | )
|                                               |  |      |         |      |   |         |  
|                                               |  | $    | (9,511  | )    | $ | (60,857 | )
|                                               |  |      |         |      |   |         |  

17.  SEGMENTED INFORMATION

The
Company currently operates in one industry segment, the automotive powertrain business, designing and manufacturing parts and assemblies primarily for the automotive OEMs or
their Tier I and Tier II powertrain component manufacturers.

The
Company operates internationally and its manufacturing facilities are arranged geographically to match the requirements of the Company's customers in each market. Each manufacturing
facility has the capability to offer many different powertrain parts and assemblies as the technological processes employed can be used to make many different parts and assemblies. Additionally,
specific marketing and distribution strategies are required in each geographic region.

The
Company currently operates in four geographic segments of which only two are reportable segments. The accounting policies for the segments are the same as those described in
Note 1 to the consolidated financial statements and intersegment sales are accounted for at prices which approximate fair value.

71

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Executive
management assesses the performance of each segment based on income before income taxes as the management of income tax expense is centralized.

|(Canadian dollars in thousands)        |  | North American Automotive |           | European Automotive |   | Other Automotive |   | Total |       
|-------------------------------------- |  | ------------------------- | --------- | ------------------- | - | ---------------- | - | ----- | ------
|July 31, 2002                          |  |                           |           |                     |   |                  |   |       |       
|                                       |  |                           |           |                     |   |                  |   |       |       
|Total sales                            |  | $                         | 1,058,852 |                     | $ | 253,614          |   | $     | 46,421
|Intersegment sales                     |  |                           | (14,844   | )                   |   | (2,427           | ) |       |      
|                                       |  |                           |           |                     |   |                  |   |       |       
|Sales to external customers            |  | $                         | 1,044,008 |                     | $ | 251,187          |   | $     | 46,421
|                                       |  |                           |           |                     |   |                  |   |       |       
|Depreciation and amortization (Note 6) |  | $                         | 44,263    |                     | $ | 10,060           |   | $     | 4,340 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Interest, net                          |  | $                         | 1,475     |                     | $ | 840              |   | $     | 1,698 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Income before income taxes             |  | $                         | 116,126   |                     | $ | 10,496           |   | $     | 1,490 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Capital assets, net (Note 18)          |  | $                         | 301,037   |                     | $ | 90,101           |   | $     | 38,488
|                                       |  |                           |           |                     |   |                  |   |       |       
|Capital asset additions (Note 18)      |  | $                         | 93,460    |                     | $ | 24,537           |   | $     | 4,036 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Goodwill, at carrying value (Note 6)   |  | $                         | 19,828    |                     | $ | 946              |   | $     |      
|                                       |  |                           |           |                     |   |                  |   |       |       
|July 31, 2001                          |  |                           |           |                     |   |                  |   |       |       
|                                       |  |                           |           |                     |   |                  |   |       |       
|Total sales                            |  | $                         | 948,336   |                     | $ | 219,744          |   | $     | 45,564
|Intersegment sales                     |  |                           | (8,725    | )                   |   | (2,775           | ) |       |      
|                                       |  |                           |           |                     |   |                  |   |       |       
|Sales to external customers            |  | $                         | 939,611   |                     | $ | 216,969          |   | $     | 45,564
|                                       |  |                           |           |                     |   |                  |   |       |       
|Depreciation and amortization (Note 6) |  | $                         | 39,024    |                     | $ | 8,368            |   | $     | 4,254 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Interest, net                          |  | $                         | 454       |                     | $ | (510             | ) | $     | 1,753 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Income before income taxes             |  | $                         | 103,615   |                     | $ | 17,174           |   | $     | 3,431 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Capital assets, net                    |  | $                         | 250,250   |                     | $ | 63,921           |   | $     | 34,837
|                                       |  |                           |           |                     |   |                  |   |       |       
|Capital asset additions                |  | $                         | 80,211    |                     | $ | 15,764           |   | $     | 1,650 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Goodwill, net (Note 6)                 |  | $                         | 17,870    |                     | $ | 1,361            |   | $     |      
|                                       |  |                           |           |                     |   |                  |   |       |       
|July 31, 2000                          |  |                           |           |                     |   |                  |   |       |       
|                                       |  |                           |           |                     |   |                  |   |       |       
|Total sales                            |  | $                         | 883,295   |                     | $ | 208,830          |   | $     | 42,748
|Intersegment sales                     |  |                           | (4,241    | )                   |   | (2,847           | ) |       |      
|                                       |  |                           |           |                     |   |                  |   |       |       
|Sales to external customers            |  | $                         | 879,054   |                     | $ | 205,983          |   | $     | 42,748
|                                       |  |                           |           |                     |   |                  |   |       |       
|Depreciation and amortization (Note 6) |  | $                         | 31,265    |                     | $ | 7,760            |   | $     | 4,488 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Interest, net                          |  | $                         | 1,042     |                     | $ | (808             | ) | $     | 3,037 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Income before income taxes             |  | $                         | 116,111   |                     | $ | 14,949           |   | $     | 2,527 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Capital assets, net                    |  | $                         | 208,393   |                     | $ | 55,977           |   | $     | 41,687
|                                       |  |                           |           |                     |   |                  |   |       |       
|Capital asset additions                |  | $                         | 54,292    |                     | $ | 21,018           |   | $     | 6,637 
|                                       |  |                           |           |                     |   |                  |   |       |       
|Goodwill, net (Note 6)                 |  | $                         | 17,788    |                     | $ | 1,704            |   | $     |      
|                                       |  |                           |           |                     |   |                  |   |       |       

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The
final destination of the Company's sales to its external customers are as follows:

|(Canadian dollars in thousands) |  | 2002 |           | 2001 |   | 2000     
|------------------------------- |  | ---- | --------- | ---- | - | ---------
|Canada                          |  | $    | 121,895   |      | $ | 109,775  
|United States                   |  |      | 773,967   |      |   | 696,959  
|Europe                          |  |      | 365,219   |      |   | 321,445  
|Other foreign countries         |  |      | 80,535    |      |   | 73,965   
|                                |  |      |           |      |   |          
|                                |  | $    | 1,341,616 |      | $ | 1,202,144
|                                |  |      |           |      |   |          

In
2002, sales to the Company's four largest customers (including their global subsidiaries) amounted to 42%, 18%, 9% and 7% of total sales
(2001  40%, 20%, 8% and 8%; 2000  38%, 20%, 9% and 8%).

18.  RELATED PARTY TRANSACTIONS

The Company completed transactions with Magna, the Company's controlling shareholder, and other companies under Magna's control during the year as follows:

|(Canadian dollars in thousands)         |  | 2002 |        | 2001 |   | 2000  
|--------------------------------------- |  | ---- | ------ | ---- | - | ------
|Sales (i)                               |  | $    | 21,072 |      | $ | 15,316
|Purchases of materials and services (i) |  | $    | 5,109  |      | $ | 6,960 
|Rental of manufacturing facilities      |  | $    | 1,328  |      | $ | 976   
|Affiliation fee (ii)                    |  | $    | 13,416 |      | $ | 12,022
|Social fee (iii)                        |  | $    | 1,922  |      | $ | 1,863 
|Other specific charges (iv)             |  | $    | 2,913  |      | $ | 1,386 
|Interest                                |  | $    | 28     |      | $ | 113   
|Construction management fees (v(b))     |  | $    | 2,226  |      | $ |      

The
outstanding balances related to these transactions at the end of the year are included in the consolidated financial statements as follows:

|(Canadian dollars in thousands)                    |  | 2002 |       | 2001
|-------------------------------------------------- |  | ---- | ----- | ----
|Accounts receivable (i)                            |  | $    | 2,484 |     
|Accounts payable and other accrued liabilities (i) |  | $    | 6,560 |     

---

73

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19.  COMMITMENTS AND CONTINGENCIES

The
Company had commitments under operating leases requiring future minimum annual rental payments for the years ending July 31 as follows:

|(Canadian dollars in thousands) |  |  
|------------------------------- |  | -
|2003                            |  | $
|2004                            |  |  
|2005                            |  |  
|2006                            |  |  
|2007                            |  |  
|Thereafter                      |  |  
|                                |  |  
|                                |  | $
|                                |  |  

Approximately
18% (2001  24%) of these lease commitments represent the Company's share of commitments of its proportionately consolidated jointly
controlled entities. Approximately 32% (2001  18%) of the lease commitments are with related parties.

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For
the year ended July 31, 2002, payments under operating leases amounted to approximately $8.0 million (2001  $6.3 million;
2000  $5.8 million).

The
Company has commitments to purchase capital assets of approximately $32.9 million as at July 31, 2002
(2001  $30.7 million). In addition, as described in Note 13a(ii), in May 2002, the Company entered into a three year contract to purchase
specified levels of hydro electricity supply in Ontario during expected peak and non-peak time periods at specified fixed prices. The total commitment remaining under this contract at
July 31, 2002 is approximately $6.5 million.

The
Company's Corporate Constitution requires that a portion of the Company's profits be distributed or used for certain purposes, including but not limited to the following:



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

20.  UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The Company's consolidated financial statements are prepared in accordance with Canadian GAAP which conform in all material respects with U.S. GAAP except
for the following:

Prior
to August 1, 2000, the income tax provision under Canadian GAAP was based on the deferral method and adjustments were not made for changes in income tax rates. Under
U.S. GAAP, the income tax provision was calculated using the liability method and adjustments were made for enacted changes in income tax rates.

The
Company uses foreign exchange forward contracts to manage foreign exchange risk from its underlying customer contracts. As detailed in Note 13, the Company uses foreign
exchange forward contracts for the sole purpose of hedging certain of its future committed U.S. dollar and euro inflows and outflows. Under Canadian GAAP, gains and losses on these contracts
are accounted for as a component of the related hedged transaction. For periods up to and including July 31, 2000, gains and losses on these contracts were also accounted for as a component of
the related hedged transaction under U.S. GAAP.

Effective
August 1, 2000, the Company adopted Statement of Financial Accounting Standards Board (FASB) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by FASB Statements No. 137 and 138 (collectively the Statement), which establishes accounting and reporting standards for derivative instruments, including
certain derivatives embedded in other contracts and for hedging activities. The Statement requires a company to recognize all of its derivative instruments, whether designated in hedging relationships
or not, on the balance sheet at fair value. The accounting for changes in fair value (i.e., gains or

75

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losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. The Statement establishes certain criteria to be met in order to
designate a derivative instrument as a hedge and deem a hedge as effective.

The
Company is currently working towards a new treasury management system that complies with the new documentation requirements for hedge accounting under the Statement. For the year
ended July 31, 2002, the Company's derivative portfoliois not eligible for hedge accounting despite the fact that management considers its portfolio to be an effective foreign currency risk
management tool and an economic hedge of the Company's projected cash flows in the significant foreign currencies in which it transacts.

Accordingly,
the Company has recorded a gain of $2.4 million for the year ended July 31, 2002 in its reconciliation of net income under U.S. GAAP. In 2001, the
Company recorded a cumulative gain of $2.5 million as a component of comprehensive income upon adoption of the Statement of which $1.3 million has now been realized through
U.S. GAAP net income.

The
Company has reviewed its other commercial contracts outstanding as at July 31, 2002 and 2001 in relation to the Statement and has concluded that there are no freestanding
derivatives having a significant impact on the consolidated financial statements. In addition, the Company has determined that there are no other embedded derivative instruments outstanding.

Under
U.S. GAAP, the Company would have expensed all preproduction costs as incurred.

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

Under
U.S. GAAP, gains and losses arising on the translation of foreign currency denominated long-term debt, at exchange rates prevailing on the balance sheet date,
are included in income. Under Canadian GAAP, these amounts are deferred and amortized over the remaining term of the debt (see Note 20(l)).

The
Company continues to measure compensation cost related to awards of stock options using the intrinsic value-based method of accounting as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" as permitted by Statement of Financial Accounting Standards Board No. 123 "Accounting for Stock-Based Compensation" (FAS 123). Under APB
Opinion No. 25, when a stock option is repurchased by the Company for a cash payment, the Company must record compensation expense. Under Canadian GAAP, the payment is considered a capital
transaction and recorded in retained earnings.

In
addition, under FAS 123, when stock options are issued to non-employees other than directors acting in their capacities as directors, the Company must record
compensation expense. Options issued to directors for services provided outside of their role as directors are recorded as compensation expense by the Company. Under Canadian GAAP, no compensation
expense is recognized because the options have no intrinsic value at the time of issuance.

Under
U.S. GAAP FASB Statement No. 52 (FAS 52), the Company would only realize a gain or loss on the portion of the currency translation adjustment included as a separate
component of the net investment in a foreign operation upon a sale or complete, or substantially complete, liquidation of the related investment.

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Under FAS 52, no gains or losses are recognized as a result of capital transactions, including the payment of dividends. Under Canadian GAAP, the Company is required to realize a gain or loss equal
to the appropriate portion of the cumulative translation adjustment account when there is a reduction in the Company's net investment in a foreign subsidiary resulting from the payment of dividends.

The
following table presents net income and earnings per share information following U.S. GAAP:

|(Canadian dollars in thousands, except per share and share figures)                                                        |                                                                                                    | 2002 |        | 2001   |   | 2000   |       
|-------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ---- | ------ | ------ | - | ------ | ------
|Net income attributable to Class A Subordinate Voting Shares and Class B Shares under Canadian GAAP                        |                                                                                                    | $    | 83,840 |        | $ | 88,795 |       
|Adjustments:                                                                                                               |                                                                                                    |      |        |        |   |        |       
|                                                                                                                           | Change in fair value of derivative instruments                                                     |      |        | 2,437  |   |        | 2,366 
|                                                                                                                           | Amortization of deferred preproduction costs                                                       |      |        | 882    |   |        | 873   
|                                                                                                                           | Stock-based compensation on stock options issued for consulting services                           |      |        | (377   | ) |        | (391  
|                                                                                                                           | Unrealized exchange gain (loss) on translation of foreign currency denominated long-term debt      |      |        | 265    |   |        | (384  
|                                                                                                                           | Translation (gains) losses realized on the reduction of the net investment in foreign subsidiaries |      |        | (185   | ) |        | 3,372 
|                                                                                                                           | Compensation expense on repurchase of stock options                                                |      |        |       |   |        | (417  
|                                                                                                                           | Income tax provision adjustment under the liability method                                         |      |        |       |   |        |      
|                                                                                                                           |                                                                                                    |      |        |        |   |        |       
|Net income attributable to Class A Subordinate Voting Shares and Class B Shares under U.S. GAAP                            |                                                                                                    | $    | 86,862 |        | $ | 94,214 |       
|                                                                                                                           |                                                                                                    |      |        |        |   |        |       
|Earnings per Class A Subordinate Voting Share or Class B Share under U.S. GAAP                                             |                                                                                                    |      |        |        |   |        |       
|                                                                                                                           | Basic                                                                                              |      | $      | 2.95   |   | $      | 3.22  
|                                                                                                                           | Diluted                                                                                            |      | $      | 2.91   |   | $      | 3.19  
|                                                                                                                           |                                                                                                    |      |        |        |   |        |       
|Weighted average number of Class A Subordinate Voting Shares and Class B Shares outstanding during the year (in thousands) |                                                                                                    |      |        |        |   |        |       
|                                                                                                                           | Basic                                                                                              |      |        | 29,454 |   |        | 29,214
|                                                                                                                           | Diluted                                                                                            |      |        | 29,829 |   |        | 29,558
|                                                                                                                           |                                                                                                    |      |        |        |   |        |       

|(Canadian dollars in thousands)                                                                           |                                                                                                                   | 2002 |         | 2001   |   | 2000   |       
|--------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ---- | ------- | ------ | - | ------ | ------
|Net income attributable to Class A Subordinate Voting Shares and Class B Shares under U.S. GAAP           |                                                                                                                   | $    | 86,862  |        | $ | 94,214 |       
|Adjustments:                                                                                              |                                                                                                                   |      |         |        |   |        |       
|                                                                                                          | Unrealized foreign exchange gains (losses) on translation of self-sustaining foreign operations                   |      |         | 20,638 |   |        | (4,025
|                                                                                                          | Adjustment for derivative instruments matured during 2002, included in the cumulative adjustment at July 31, 2001 |      |         | (1,266 | ) |        |      
|Cumulative adjustment to derivative instruments                                                           |                                                                                                                   |      |        |        |   | 2,530  |       
|                                                                                                          |                                                                                                                   |      |         |        |   |        |       
|Comprehensive income attributable to Class A Subordinate Voting Shares and Class B Shares under U.S. GAAP |                                                                                                                   | $    | 106,234 |        | $ | 92,719 |       
|                                                                                                          |                                                                                                                   |      |         |        |   |        |       

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

|(Canadian dollars in thousands) |  | 2002 |        | 2001
|------------------------------- |  | ---- | ------ | ----
|Prepaid expenses and other      |  | $    | 21,440 |     
|Future tax liabilities          |  | $    | 40,860 |     
|                                |  |      |        |     

The
following table presents shareholders' equity under U.S. GAAP:

|(Canadian dollars in thousands)        |  | 2002 |         | 2001 |  
|-------------------------------------- |  | ---- | ------- | ---- | -
|Class A Subordinate Voting Shares      |  | $    | 286,613 |      | $
|Class B Shares                         |  |      | 2,583   |      |  
|Retained earnings                      |  |      | 324,017 |      |  
|Accumulated other comprehensive income |  |      | 10,095  |      |  
|                                       |  |      |         |      |  
|                                       |  | $    | 623,308 |      | $
|                                       |  |      |         |      |  

The
Company does not recognize compensation expense for its outstanding fixed price stock options. Under U.S. GAAP FAS 123, the Company is required to make proforma
disclosures of net income attributable to Class A Subordinate Voting Shares and Class B Shares and basic and diluted earnings per Class A Subordinate Voting Share or
Class B Share as if the fair value method of accounting prescribed therein had been applied.

The
Company estimates the fair value of stock options at the date of grant using the Black Scholes option pricing model. No fair value estimates were made during 2002 as the Company did
not grant any additional stock options during the year ended July 31, 2002. The estimated fair value of options granted in the comparative periods were determined using the following weighted
average assumptions:

|                                 |  | 2001 |  | 2000
|-------------------------------- |  | ---- |  | ----
|Risk free interest rate          |  | 5.7% |  | 5.9%
|Expected dividend yield          |  | 2.4% |  | 2.4%
|Expected volatility              |  | 32%  |  | 31% 
|Expected life of options (years) |  | 5    |  | 5   
|                                 |  |      |  |     

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

Additionally,
under FAS 123, the methodology for calculating compensation expense on stock options surrendered for a cash payment requires the Company to exclude the intrinsic
value of the stock option immediately before the settlement from the amount of compensation cost recognized.

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Accordingly,
for purposes of proforma disclosures, the Company's net income attributable to Class A Subordinate Voting Shares and Class B Shares and basic and diluted
earnings per Class A Subordinate Voting Share or Class B Share would have been as follows:

|(Canadian dollars in thousands, except per share figures)                                                |         | 2002 |        | 2001 |   | 2000  
|-------------------------------------------------------------------------------------------------------- | ------- | ---- | ------ | ---- | - | ------
|Proforma net income attributable to Class A Subordinate Voting Shares and Class B Shares under U.S. GAAP |         | $    | 85,631 |      | $ | 92,910
|Proforma earnings per Class A Subordinate Voting Share or Class B Share                                  |         |      |        |      |   |       
|                                                                                                         | Basic   |      | $      | 2.91 |   | $     
|                                                                                                         | Diluted |      | $      | 2.87 |   | $     
|                                                                                                         |         |      |        |      |   |       

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

Canadian GAAP standards and guidelines:

In
December 2001, the CICA amended Handbook Section 1650 "Foreign Currency Translation" (CICA 1650). The most significant change under the new recommendations is to
eliminate the deferral and amortization method for unrealized translation gains and losses on non-current monetary assets and liabilities. The amendments to CICA 1650 are effective for
fiscal years beginning on or after January 1, 2002.

In
November 2001, the CICA issued Handbook Section 3870, "Stock Based Compensation and Other Stock Based Payments" (CICA 3870). CICA 3870 requires that certain types of
stock-based compensation arrangements be accounted for at fair value giving rise to compensation expense. The new recommendations are effective for fiscal years beginning on or after January 1,
2002 and are applicable to awards granted on or after the date of adoption.

In
December 2001, the CICA issued Accounting Guideline ACG-13, "Hedging Relationships" (ACG-13). ACG-13 establishes certain conditions that
must exist at the inception of a hedge in order to apply hedge accounting under Canadian GAAP and are consistent with the criteria that currently are required in order to apply hedge accounting under
U.S. GAAP. The new guideline is applicableto fiscal years beginning on or after July 1, 2003.

The
Company is currently reviewing the new CICA pronouncements. The impact, if any, of these pronouncements on the Company's consolidated financial statements has not been determined.

U.S. GAAP standards:

During
fiscal 2002, FASB issued Statements of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (FAS 143) and No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" (FAS 144).

FAS 143
requires that legal obligations arising from the retirement of tangible long-lived assets, including obligations identified by a company upon acquisition and
construction and during the operating life of a long-lived asset, be recorded and amortized over the asset's useful life using a systematic and rational allocation method. FAS 143
is effective for fiscal years beginning after June 15, 2002.

FAS 144,
which supersedes FAS 121, is effective for fiscal years beginning after December 15, 2001. FAS 144 provides guidance on differentiating between
assets held for sale and held for disposal other than by sale. Consistent with FAS 121, FAS 144 continues to require the same approach for recognizing and measuring the impairment of
assets to be held and used.

The
Company is currently reviewing the new FASB pronouncements. The impact, if any, of these pronouncements on the Company's consolidated financial statements has not been determined.

21.  COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

Certain other comparative figures have been reclassified to conform to the current year's method of presentation.

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4.    Other Information



5.    Exhibits.



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UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

A. Undertaking.

The Company undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Securities and Exchange Commission (the
"Commission") staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the
securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

B. Consent to Service of Process.

The Company has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this report
arises.

Any
change to the name or address of the agent for service of process of the registrant shall be communicated promptly to the Securities and Exchange Commission by an amendment to the
Form F-X referencing the file number of the relevant registration statement.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant certifies that it meets all of the requirements for filing on Form 40-F
and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 11, 2002.

| |  | TESMA INTERNATIONAL INC.                                                    
| |  | ----------------------------------------------------------------------------
| |  | By:                                                                         
| |  |                                                                             
| |  | Name: Stefan T. Proniuk
Title: Vice-President, Secretary and General Counsel
| |  | By:                                                                         
| |  |                                                                             
| |  | Name: James L. Moulds
Title: Vice-President, Finance and Treasurer          

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CERTIFICATIONS

I, Manfred Gingl, certify that:

Date:
December 11, 2002

| | /s/Manfred GinglManfred Gingl
Vice-Chairman and Chief Executive Officer
| | -----------------------------------------------------------------------

I,
Anthony E. Dobranowski, certify that:

Date:
December 11, 2002

| | /s/Anthony E. DobranowskiAnthony E. Dobranowski
President and Chief Financial Officer
| | -------------------------------------------------------------------------------------

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EXHIBIT INDEX

|Exhibit |  | Description                       
|------- |  | ----------------------------------
|99.1    |  | Consent of Independent Accountants

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