<PAGE>

================================================================================

                                  United States
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                        For Annual and transition Reports
                     PURSUANT TO SECTION 13 OR 15(d) of the
                         SECURITIES Exchange ACT OF 1934

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                  For the Fiscal Year Ended December 31, 2002

                                       or

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     exchange Act of 1934

             For the Transition Period from ________ to _________.

                         Commission File Number 1-13683

                         DELCO REMY INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

                     Delaware                                35-1909253
          (State or other jurisdiction of                 (I.R.S. Employer
           incorporation or organization)                Identification No.)

               2902 Enterprise Drive
                 Anderson, Indiana                              46013
     (Address of principal executive offices)                 (Zip Code)

       Registrant's telephone number, including area code: (765) 778-6499
        Securities registered pursuant to Section 12(b) of the Act: None
        Securities registered pursuant to Section 12(g) of the Act: None

     INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 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 [X]    NO [_]

     INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]

     INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN EXCHANGE ACT RULE 12B-2).                YES [_]    NO [X]

     STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON EQUITY
HELD BY NON-AFFILIATES COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE COMMON
EQUITY WAS LAST SOLD, OR THE AVERAGE BID AND ASKED PRICE OF SUCH COMMON EQUITY,
AS OF THE LAST BUSINESS DAY OF THE REGISTRANT'S MOST RECENTLY COMPLETED SECOND
FISCAL QUARTER. Not Applicable

     INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.


                                                          Outstanding as of
                                                           March 15, 2003

                 Common Stock-- Class A                         1,000.00
                 Common Stock-- Class B                     2,485,337.49
                 Common Stock-- Class C                        16,687.00

DOCUMENTS INCORPORATED BY REFERENCE: None.

<PAGE>

                         DELCO REMY INTERNATIONAL, INC.
                                   FORM 10-K
                               DECEMBER 31, 2002

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I                                                                      Page
                                                                            ----
<S>                                                                         <C>
Item 1.   Business                                                            3
Item 2.   Properties                                                         12
Item 3.   Legal Proceedings                                                  14
Item 4.   Submission of Matters to a Vote of Security Holders                14

PART II

Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters                                                15
Item 6.   Selected Financial Data                                            15
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                          16
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk          27
Item 8.   Financial Statements and Supplementary Data                        30
Item 9.   Changes in and Disagreements With Accountants on Accounting
          and Financial Disclosure                                           69

PART III

Item 10.  Directors and Executive Officers of the Registrant                 70
Item 11.  Executive Compensation                                             71
Item 12.  Security Ownership of Certain Beneficial Owmers and Management     75
Item 13.  Certain Relationships and Related Transactions                     77
Item 14.  Controls and Procedures                                            78

PART IV

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K   79

          SIGNATURES                                                         83
          CERTIFICATIONS                                                     85
</TABLE>

                                       2

<PAGE>

                                     PART I

     From time to time, Delco Remy International, Inc. (the "Company") makes
oral and written statements that may constitute "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995 (the "Act") or
by the Securities and Exchange Commission ("SEC") in its rules, regulations and
releases. The Company desires to take advantage of the "safe harbor" provisions
in the Act for forward-looking statements made from time to time, including, but
not limited to, the forward-looking statements relating to the future
performance of the Company contained in this Form 10-K and in other filings with
the SEC.

     Any statements set forth below or otherwise made in writing or orally by
the Company with regard to its expectations as to financial results and other
aspects of its business may constitute forward-looking statements. These
statements relate to the Company's future plans, objectives, expectations and
intentions and may be identified by words like "believe," "expect," "may,"
"will," "should," "seek," or "anticipate," and similar expressions.

     The Company cautions readers that any such forward-looking statements are
based on assumptions that the Company believes are reasonable, but are subject
to a wide range of risks including, but not limited to, risks associated with
the uncertainty of future financial results, acquisitions, additional financing
requirements, development of new products and services, the effect of
competitive products or pricing, the effect of economic conditions and other
uncertainties. Due to these uncertainties, the Company cannot assure readers
that any forward-looking statements will prove to have been correct.

ITEM 1  BUSINESS

     The Company is a leading global manufacturer and remanufacturer of original
equipment and aftermarket electrical, powertrain/drivetrain and related
components for automobiles, light trucks, medium and heavy duty trucks and other
heavy duty vehicles. The Company's products are sold worldwide primarily under
the "Delco Remy" brand name, as well as other widely recognized private label
brands. The Company's products include starter motors ("starters"), alternators,
engines, transmissions, torque converters and fuel systems which are principally
sold or distributed to original equipment manufacturers ("OEMs") for both
original equipment manufacture and aftermarket operations, as well as to
warehouse distributors and retail automotive parts chains. The Company sells its
products principally in North America, Europe, Latin America and Asia-Pacific.

     The Company believes that it is the largest producer in North America of
OEM starters for automobiles and light trucks and starters and alternators for
medium and heavy duty vehicles. The Company believes it is also the largest
producer in the world of remanufactured starters and alternators for the
aftermarket. The Company provides exchange services for cores for third party
aftermarket remanufacturers. The Company's largest customers include General
Motors ("GM"), International Truck and Engine Corporation ("Navistar"), Advance
Auto Parts, Daimler Chrysler, Caterpillar, Ford, AutoZone, Delphi, PACCAR,
O'Reilly, Cummins, Volvo/Mack Trucks, and Mazda.

     Since the Company's separation from GM in 1994, the Company has seen
significant growth through strategic acquisitions and joint ventures which have
broadened its product line, expanded its manufacturing and remanufacturing
capability, extended its participation in international markets and increased
its penetration of the retail automotive parts channel. As a result, sales to
its customers other than GM have increased from 41% of the Company's total sales
in fiscal year 1995 to 77% in fiscal year 2002. The Company has also increased
sales outside of the Class 8 heavy duty truck market from 87% of its total sales
in fiscal year 1995 to 95% in fiscal year 2002.

     The Company changed its fiscal year end to December 31, effective August 1,
2000. Prior to August 1, 2000, the fiscal year ended on July 31. References to
"fiscal year" other than fiscal year 2002 and 2001 pertain to years ending July
31 of such year.

                                       3

<PAGE>

Acquisitions

     During fiscal year 2002, the Company made payments totaling $5.398 million
under contractual put agreements to purchase additional shares from the minority
shareholders of World Wide Automotive, Inc. ("World Wide"), which was acquired
in 1997. These payments increased the Company's ownership percentage of World
Wide from 88.2% to 94.0%.

     Also during fiscal year 2002, the Company made payments totaling $5.625
million under contractual put agreements to purchase additional shares from the
minority shareholder of Power Investments, Inc. ("Power"), which was acquired in
1996. These payments increased the Company's ownership percentage of Power from
85.8% to 93.4%.

     The Company also made cash payments totaling $5.485 million and issued
notes in the amount of $9.918 million in fiscal year 2002 to purchase additional
shares from the minority shareholders of Delco Remy Korea, which was acquired in
1999. This transaction increased the Company's ownership percentage in Delco
Remy Korea from 81.0% to 100%.

     At December 31, 2002, the Company was in negotiations with Delphi
Corporation to purchase certain portions of its generator business. In the
fourth quarter of 2002, the Company completed the acquisition of intellectual
property rights for the light duty alternator product line and certain other
assets for production of automotive alternators. Additional agreements are
expected to be completed in 2003.

Divestiture of Non-Core Businesses and Joint Ventures

     On March 7, 2003 and on March 19, 2003, the Company successfully completed
the sale of two non-core businesses that were engaged in the manufacturing of
traction control devices and components for the air-conditioning industry. The
net proceeds of the sales were approximately $29 million. These non-core
businesses will be treated as discontinued operations beginning in the first
quarter of 2003. The sale of these non-core businesses is not expected to have a
material effect on the Company's results of operations.

     The Company's joint venture, Continental ISAD Electric Systems GmbH & Co.
that was formed with Continental AG in January 2000, was terminated in 2002.

Plant Closures

     On January 7, 2003, the Company announced that it will close its Delco Remy
America starter and alternator manufacturing operations in Anderson, Indiana
during the first quarter of 2003. Production at these plants will be absorbed by
other Company plants globally. The wind down of the Anderson manufacturing
operations will affect approximately 350 hourly United Autoworkers Union ("UAW")
represented employees and approximately 50 salaried employees currently
supporting these plants.

     On March 18, 2003, the Company announced it would close, by year-end, its
electrical remanufacturing business, NABCO, located in Reed City, Michigan. The
wind down of the Reed City remanufacturing operations will affect approximately
200 employees. The NABCO facilities in Kaleva and Marion, Michigan will continue
to remanufacture components for Delphi and other selected customers.

Discontinued Operations

     In the second quarter of 2002, the Company concluded that its retail
aftermarket gas engine business does not fit with its strategic objectives and
completed plans to exit the business. In connection with the discontinuance of
the business, a charge of $28.2 million was recorded to write down the relevant
assets to their estimated realizable value. An additional charge of $2.824
million was recorded for the estimated cost of employee termination benefits and
closure of the facilities. Operating losses during the wind-down period are
reported in results from discontinued operations.

Industry Overview

     In general, the Company's business is influenced by the underlying trends
of the automotive industry. However, the Company believes that its focus on
expanding its remanufacturing capabilities heightens the importance of the
aftermarket business and reduces its dependence on the cyclical OEM business.

Aftermarket

     The aftermarket consists of the production and sale of both new and
remanufactured parts used in the maintenance and repair of automobiles, trucks
and other vehicles.

                                       4

<PAGE>

     Remanufacturing is a process through which cores (used non-functional
parts) are disassembled into their sub-components, cleaned, inspected, tested,
combined with new subcomponents and reassembled into finished products. A
remanufactured product can be produced at lower cost and higher quality than a
comparable individually repaired unit due to effective salvage technology
methods, high volume precision manufacturing techniques and rigorous inspection
and testing procedures. The ability to procure cores
is critical to the remanufacturing process.

     Aftermarket parts are supplied principally through three distribution
channels:

     .    car and truck dealers that obtain parts through their OEM parts
          organizations (e.g., GM Service Parts Operations ("GM SPO"), Ford
          Parts and Service Division, Freightliner, Caterpillar Service Parts,
          and International Truck Parts Organization) or directly from an
          OEM-authorized remanufacturer;

     .    retail automotive parts chains and mass merchandisers; and

     .    independent warehouse distributors and jobbers who supply independent
          service stations, installers, specialty and general repair shops, farm
          equipment dealers, car dealers and small retailers.

     The Company believes that the aftermarket and the Company's opportunity in
the aftermarket have been, and will continue to be, impacted by the following
trends:

     .    the increasing number and average age of vehicles in use and the
          number of miles driven annually;

     .    the increasing demands of customers that their aftermarket suppliers
          meet high quality and service standards;

     .    the increasing use of remanufactured parts for OEM warranty and
          extended service programs, especially on larger, more complex
          components such as engines, transmissions and fuel system components;

     .    the growth and consolidation of large retail automotive parts chains
          and warehouse distributors requiring larger, nationally capable
          suppliers;

     .    the increasing engine output and durability demands related to the
          high temperatures at which engines operate;

     .    the increased high-technology content of replacement components which
          requires more factory manufacturing compared with in-vehicle repair;
          and

     .    the increasing service lives of automotive parts.

     The use of remanufactured components for warranty and extended service
repairs has increased in recent years as OEMs have offered extended warranty and
extended service coverage and dealers have begun to provide extended service
plans and warranties on used vehicles. OEMs have sought to reduce warranty and
extended service costs by using remanufactured components, which generally offer
the same degree of quality and reliability as OEM products at a lower cost. This
trend has also resulted in independent aftermarket customers requiring higher
quality standards for remanufactured products.

     Recently, large retail automotive parts chains offering a broad range of
new and remanufactured products have experienced rapid growth at the expense of
small, independent retail and wholesale stores. The Company has significantly
grown its sales to these large retail channels and believes that further
increasing its sales to retail chains offers a significant opportunity for
growth. Retail chains generally prefer to deal with large, national suppliers
capable of meeting their cost, quality, volume and service requirements.

OEM Markets

     The OEM market consists of the production and sale of new component parts
for use in the manufacture of new vehicles. The OEM market includes two major
classes of customers:

     .    automobile and light truck manufacturers, marine and industrial
          manufacturers;

     .    medium and heavy duty truck and engine manufacturers and other heavy
          duty vehicle manufacturers.

                                       5

<PAGE>

     The OEM market has been impacted by recent fundamental changes in the OEMs'
sourcing strategies. OEMs are consolidating their supplier base, demanding that
their suppliers provide technologically advanced product lines, greater systems
engineering support and management capabilities, just-in-time sequenced delivery
and lower system costs. As a result, each OEM has selected its own preferred
suppliers. OEMs are increasingly requiring that their preferred suppliers
establish global production capabilities to meet their needs as they expand
internationally and increase platform standardization across multiple markets.
As OEM global alliances increase, global pricing for automotive components is
becoming the norm.

     OEMs continue to outsource component manufacturing of non-strategic parts.
Outsourcing has taken place in response to competitive pressures on OEMs to
improve quality and reduce capital outlays, production costs, overhead and
inventory levels. In addition, OEMs are increasingly purchasing integrated
systems from suppliers who provide the design, engineering, manufacturing and
project management support for a complete package of integrated products. By
purchasing complete systems, OEMs are able to shift design, engineering and
product management to fewer and more capable suppliers. Integrated systems
suppliers are generally able to design, manufacture and deliver components at a
lower cost than the OEMs due to:

     .    their lower labor costs and other manufacturing efficiencies;

     .    their ability to spread research and development and engineering costs
          over products provided to multiple OEMs; and

     .    other economies of scale inherent in high volume manufacturing such as
          the ability to leverage global purchasing capabilities.

Products

     The Company's product line includes a diverse range of manufactured and
remanufactured products for the aftermarket and OEM markets under the "Delco
Remy" brand name or under a private-label brand name specified by the OEM or the
aftermarket customer. The Company also provides core acquisition services for
third party aftermarket remanufacturers as well as its own subsidiaries. The
product line is classified into two product categories: Electrical Systems and
Powertrain/Drivetrain. Third-party sales for core acquisition services are
included in the "Other" category.

     The following table sets forth the approximate composition by product
category of the Company's revenues for the fiscal years ended December 31, 2002
and 2001, the five months ended December 31, 2000 and the prior fiscal year
ended July 31, 2000*:

<TABLE>
<CAPTION>
                                               Year Ended               Five
                                               December 31          Months Ended   Year Ended
                                        ------------------------     December 31     July 31
          Product Categories              2002           2001           2000          2000
                                        -------------------------------------------------------
<S>                                     <C>             <C>         <C>            <C>
          Electrical systems              74.6%          73.6%          79.9%         83.2%
          Powertrain/drivetrain           19.4           20.1           13.4          13.2
          Other                            6.0            6.3            6.7           3.6
                                        -------------------------------------------------------
          Total                          100.0%         100.0%         100.0%        100.0%
                                        =======================================================
</TABLE>

        * Reference is hereby made to the consolidated financial statements and
          the notes relating thereto for a more detailed presentation of
          revenues from external customers, a breakdown of foreign revenues,
          measure of profit (loss) and total assets.

     Products within the electrical systems category include manufactured and
remanufactured starters and alternators. The starters are used in cars and
trucks manufactured by GM in North America. Starters and alternators are also
used in marine and industrial applications. The Company manufactures a full line
of heavy duty starters and alternators for use primarily with large diesel
engines. The Company's starters and alternators are specified as part of the
standard electrical system by most North American heavy duty truck and engine
manufacturers. The Company believes that it is the largest manufacturer and
remanufacturer in North America of (i) starters for automobiles and light trucks
(including sport-utility vehicles, minivans and pickup trucks) and (ii) starters
and alternators for medium and heavy duty vehicles.

     Products within the powertrain/drivetrain category include diesel and
marine engines, fuel injectors, injection pumps and turbo chargers (fuel
systems), transmissions, torque converters, water pumps, rack and pinions, power
steering pumps, and gears.

                                       6

<PAGE>

Customers

     The Company's principal customers include OEM automotive and heavy duty
manufacturers, OEM dealer networks, leading automotive parts retail chains and
warehouse distributors. The Company's major customers include GM, Navistar, GM
SPO, Advance Auto Parts, Daimler Chrysler, Caterpillar, Ford, AutoZone, Delphi,
PACCAR, O'Reilly, Cummins, Volvo/Mack Trucks, and Mazda.

     The Company has long-term agreements, with terms typically ranging from
three to five years, to supply heavy duty starters and alternators to GM,
Daimler Chrysler Commercial Trucks, PACCAR, Volvo/Mack Trucks, and Cummins.
Total sales to GM and related affiliates accounted for approximately 23.7%, of
which approximately 18.7% are OEM sales in 2002. No other customer accounted for
more than 10% of consolidated net sales.

     In connection with the Company's separation from GM in July 1994, GM
entered into long-term contracts with the Company to purchase 100% of its North
American requirements for automotive starters (other than for Saturn and Geo)
and 100% of its U.S. and Canadian requirements for heavy duty starters and
alternators, at fixed prices which are scheduled to decline over the life of the
contracts. GM's obligations to purchase the Company's automotive starters and
heavy duty starters and alternators under these agreements are subject to those
products remaining competitive as to price, technology and design. In fiscal
year 1999, the Company and GM extended the terms of these agreements for the
Company to supply automotive starting motors for existing and planned new
engines introduced to support GM North American Operations to August 31, 2008.
The amendment also provides that Delco Remy America and its international
operations will be the supplier of starting motors for the life of production of
those engines. In April 2002, price and product offering was adjusted in
accordance with the competitive (as to price, technology and design) clause of
the original agreement. The contracts relating to heavy duty products terminated
on July 31, 2000.

     In 1994, GM also entered into a long-term contract with the Company to
distribute exclusively the Company's automotive aftermarket products. Prices to
GM under this agreement are driven by the market. This agreement terminates on
July 31, 2009.

     The Company has developed a network of independent distributors to expand
sales volume not served by previous sales channels. The independent distributors
continue to be a growth market for the Company through expanded product
offerings and increased Aftermarket market share. The Company expects to
continue sales growth in this channel.

     The Company employs its own direct sales force which develops and maintains
sales relationships with major North American truck fleet operators as well as
its OEM customers worldwide. These sales efforts are supplemented by a network
of field service engineers and product service engineers.

Distribution

     The Company's products are distributed to its customers primarily by common
carrier.

Competition

     The automotive parts market is highly competitive. Competition is based
primarily on quality of products, service, delivery, technical support and
price. Most OEM manufacturers and aftermarket distributors source parts from one
or two suppliers. The Company competes with a number of companies who supply
automobile manufacturers throughout the world. In the automotive market, the
Company's principal competitors include Denso, Valeo, Mitsubishi, Bosch,
Visteon, Rayloc, Units Parts and Motorcar Parts & Accessories.

                                       7

<PAGE>

Business Strategy

Exploit Leading Market Share in Fragmented Aftermarket

     The Company participates in a portion of the aftermarket that is large and
highly fragmented. Most participants are small, regional companies offering
relatively narrow product lines. A key element of the Company's growth strategy
is to capitalize on its position as a consolidator. The Company believes that it
is the largest manufacturer and remanufacturer of aftermarket starters and
alternators in the world. Today, remanufacturing is less prevalent in Europe
than in the U.S. The Company believes it is well-positioned to capitalize on the
increasing trend towards remanufacturing from repair. Consolidation of the
aftermarket is occurring as many competitors are finding it difficult to meet
the increasing quality, cost and service demands of customers, who, in turn, are
seeking to reduce the number of their suppliers. With its OEM capabilities,
remanufacturing expertise, full product line, access to cores and ability to
capitalize on economies of scale, the Company is well positioned to benefit from
the consolidation of the aftermarket.

Strengthen Customer Relationships

     The Company intends to increase its sales to new and existing customers by
capitalizing on its balanced coverage of the key aftermarket distribution
channels and its competitive strengths as an OEM supplier. The Company plans to
strengthen its customer relationships by:

     .    meeting the increasing demands of OEMs and their dealer networks for
          high-quality remanufactured units, which enable them to reduce
          warranty and extended service costs;

     .    growing sales of existing and new product lines to OEM dealer networks
          as dealers continue to capture an increasing percentage of vehicle
          repairs primarily due to longer warranty and service programs and
          growing vehicle complexity;

     .    continuing to expand its product offerings; and

     .    capitalizing on the expansion of the national automotive retail parts
          chains and warehouse distributors that are its customers.

Increase Global Presence

     OEMs are increasingly requiring suppliers to provide components on a global
basis as vehicle platforms are standardized across geographic markets.
Additionally, the Western European market for automotive components is expected
to grow at a greater rate than the North American market over the next few years
due to higher levels of OEM outsourcing. The emerging markets also should
benefit from long-term growth as demand for automotive vehicles in these markets
is expected to increase at a compounded annual rate of almost 6% over the next
five years. Currently, the Company's manufacturing base includes a presence in
eight countries on four continents. It plans to seek out collaborative
opportunities in order to expand its OEM starter and alternator product lines
and its international marketing and distribution capability. The Company
believes that continued global expansion will enable it to continue to grow to
meet these demands.

Increase Focus on Technologically Advanced Products

     The Company continues to produce technologically advanced products by
regularly updating and enhancing its product line. These products help it to
compete successfully in the global marketplace. Since 1994, the Company has
completed the introduction of a new family of gear reduction starters that
replaced all straight drive starters in GM automobiles and light duty trucks by
the 1998 model year and introduced several longer-life heavy duty alternators.
It is also in various stages of development on a number of new products
including:

     .    a new family of gear reduction starters for the medium and heavy duty
          truck and industrial market;

     .    a new family of light duty passenger car/light truck alternators;

     .    a small gear reduction starter specifically designed for application
          on world automobile platforms; and

     .    high-technology products in the distributed generation and hybrid
          electric vehicle markets.

                                        8

<PAGE>

Patents, Trademarks and Licenses

     Pursuant to a Trademark License Agreement between the Company and GM, GM
has granted the Company an exclusive license to use the "Delco Remy" trademark
on and in connection with automotive starters and heavy duty starters and
alternators until July 31, 2004, extendable indefinitely at the Company's option
upon payment of a fixed $100,000 annual licensing fee to GM. The Company has
also been granted a perpetual, royalty-free license to use the "Remy" trademark.
The "Delco Remy" and "Remy" trademarks are registered in the United States,
Canada and Mexico and in most major markets worldwide. GM has agreed with the
Company that, upon the Company's request, GM will register the trademarks in any
jurisdiction where they are not currently registered.

     The Company has also been granted an exclusive license to use the "Delco
Remy" name as a tradename and corporate name worldwide until July 31, 2004
pursuant to a Tradename License Agreement between the Company and GM. In
addition, GM has granted the Company a perpetual license to use the "Remy" name
as a tradename and corporate name worldwide.

     The Company owns and/or has obtained licenses to various domestic and
foreign patents and patent applications related to its products and processes.
The patents expire at various times over the next 17 years. While these patents
and patent applications in the aggregate are important to the Company's
competitive position, no single patent or patent application is material to the
Company.

     The Company and Delphi Technologies, Inc. ("Delphi Technologies") entered
into a license agreement dated November 30, 2002, by which the Company licensed
from Delphi Technologies certain patents and technical information used in the
manufacture and remanufacture of belt-driven automotive generators and
alternators.

Purchased Materials

     Principal purchased materials for the Company's business include: aluminum
castings, gray and ductile iron castings, armatures, solenoids, copper wire,
injectors, electronics, steel shafts, forgings, bearings, commutators, pumps and
carbon brushes. All materials are readily available from a number of suppliers,
and the Company does not foresee any difficulty in obtaining adequate inventory
supplies. The Company generally follows the North American industry practice of
passing on to its customers the costs or benefits of fluctuation in copper and
aluminum prices on an annual or semi-annual basis.

Employees

     As of December 31, 2002, the Company employed 6,338 people, 1,537 of whom
were salaried and administrative employees and 4,801 of whom were hourly
employees. In the United States, 350 of the Company's hourly workers are
represented by the UAW under an agreement between the Company and the UAW, the
applicable provisions of which were assumed by the Company in connection with
the separation from GM. The agreement between the UAW and the Company,
originally scheduled to expire on March 22, 2001, was extended an additional two
years. On January 7, 2003, the Company announced that it will close its Delco
Remy America starter and alternator manufacturing operations in Anderson,
Indiana during the first quarter of 2003. The plant closure will effect the 350
hourly workers represented by the UAW and approximately 50 salaried employees
currently supporting these plants.

     As of December 31, 2002, approximately 127 of Delco Remy Hungary's 384
hourly employees are affiliated with the Hungarian Steel Industry Workers Union.
The agreement was signed July 17, 1996 and is perpetual, subject to termination
upon three months' notice from either party.

     As of December 31, 2002, approximately 391 of Elmot's 480 hourly workers
are affiliated with The Intercompany Trade Union or the Intercompany Union
Organization NSZZ. Agreements with these unions were signed on August 23, 2000
and are perpetual.

     The Company's other facilities are primarily non-union. The Company is
unaware of any current efforts to organize the employees in its other
facilities. There can be no assurance that there will not be any labor union
efforts to organize employees at facilities that are not currently unionized. At
the present time, the Company believes that its relations with its employees are
good.

                                       9

<PAGE>

Research and Development

     The Company's engineering staff works independently and with OEMs to design
new products, improve performance and technical features of existing products
and develop methods to lower manufacturing costs. In support of its engineering
efforts, the Company has formed technical alliances with a select number of
engineering and technology firms to identify long-term engineering advances and
opportunities. The Company is a participant in Electricore Incorporated, a
consortium for advanced transportation technologies. Through this participation,
the Company is working on developing the technical alliances to develop the next
generation motors and alternators. The Company has also entered into an alliance
with Lynx Motion Technologies to develop a family of electric drive motors which
will be integral components of the propulsion system, needed for advanced hybrid
gas-electric, diesel-electric and fuel cell vehicles. The Company has obtained
new business with Allison Electric Drive, a unit of GM Powertrain, for producing
the electric machine integral to the development of the transmission used in
hybrid vehicles.

     Consistent with its strategy to introduce technologically advanced and
improved products, the Company spent approximately $15.2 million in 2002, $15.5
million in 2001, approximately $7.2 million in the five month period ended
December 31, 2000 and approximately $16.3 million in fiscal year 2000,
respectively, on research and development activities. All expenditures were
Company funded.

Foreign Operations

     Information about the Company's foreign operations is set forth in tables
relating to geographic information in Note 16 to Consolidated Financial
Statements, "Business Segments and Geographic Area Information," which
statements are included under Item 8, Financial Statements and Supplementary
Data.

Environmental Regulation

     The Company's subsidiaries' facilities and operations are subject to a wide
variety of federal, state, local and foreign environmental laws, regulations,
ordinances and directives, including those related to air emissions, wastewater
discharges and chemical and hazardous waste management and disposal
("Environmental Laws"). The Company's subsidiaries' operations also are governed
by laws relating to workplace safety and worker health, primarily the
Occupational Safety and Health Act, and foreign counterparts to such laws
("Employee Safety Laws"). The Company believes that it and its subsidiaries'
operations are in compliance with current requirements under Environmental Laws
and Employee Safety Laws, except for non-compliance where the cost that might be
incurred to resolve the non-compliance would not have a material adverse effect
on the Company's results of operations, business or financial condition. The
nature of the Company's and its subsidiaries' operations, however, exposes it to
the risk of liabilities or claims with respect to environmental and worker
health and safety matters. There can be no assurance that such costs will not be
incurred in connection with such liabilities or claims.

     The Company has commenced a series of environmental, health and safety
reviews to enable the subsidiaries to confirm their compliance with
Environmental Laws and Employee Safety Laws. Two subsidiaries of the Company,
Remy Reman and World Wide, identified past violations of the Emergency Planning
& Community Right to Know Act of 1986 ("EPCRA") and notified the Environmental
Protection Agency ("EPA") under the federal voluntary audit disclosure rules.
The EPA notified the two subsidiaries that EPA would not seek any penalties for
the disclosed EPCRA violations, and therefore those matters are resolved.

     In addition, the Remy Reman facilities in Mississippi and the World Wide
facility in Virginia identified certain possible violations of state air laws
and notified the applicable state agencies under the state voluntary audit
disclosure rules. The state agencies have either requested further information
or have not responded to the subsidiaries. The subsidiaries have or are in the
process of responding to the information requests, and they are currently in
compliance with the air permit requirements. At this time, it is unknown whether
the state environmental agencies intend to pursue enforcement actions for the
past violations or whether penalties, if sought, will be material. The Company
does not believe that the costs of the matters, if any, will have a material
adverse effect on the Company's results of operations, business or financial
condition.

     Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing Environmental Laws (or liability for
known environmental claims) will not have a material adverse effect on the
Company's business, financial condition or results of operations. However,
future events, such as changes in existing Environmental Laws or their
interpretation, may give rise to additional compliance costs or liabilities for
the subsidiaries that could have a

                                       10

<PAGE>

material adverse effect on the Company's business, financial condition or
results of operations. Compliance with more stringent Environmental Laws, as
well as more vigorous enforcement policies of regulatory agencies or stricter or
different interpretations of existing Environmental Laws, may require additional
expenditures by the Company or its subsidiaries that may be material.

     Certain Environmental Laws hold current owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products ("Hazardous
Substances"). Because of their operations, the long history of industrial uses
at some of its facilities, the operations of predecessor owners or operators of
certain of the businesses, and the use, production and release of Hazardous
Substances at these sites, the Company's subsidiaries are affected by such
liability provisions of Environmental Laws. Various of the Company's
subsidiaries' facilities have experienced in the past or are currently
undergoing some level of regulatory scrutiny and are, or may become, subject to
further regulatory inspections, future requests for investigation or liability
for past disposal practices.

     In September 2000, one of Franklin Power Product Inc.'s (a subsidiary of
the Company) Indiana facilities received a Finding of Violation and Order for
Compliance from the EPA requiring the facility to correct violations of its
wastewater discharge permits. Franklin Power Products, Inc. is in compliance
with the terms of the order and has eliminated the discharge.

     During the environmental due diligence performed in connection with the
separation from GM, GM and the Company identified certain on-site pre-closing
environmental conditions, including the presence of certain Hazardous Substances
in the soil at the former GM Meridian, Mississippi facility and in the soil and
groundwater at the former GM Anderson, Indiana facilities. At the time, GM
reported the presence of these substances in the groundwater to the EPA and the
Indiana Department of Environmental Management, and we understand that GM
continues to be responsible for working with the EPA to resolve these issues.
The Company has vacated one of the former GM Anderson facilities and the
Meridian, Mississippi facility and has ceased manufacturing at the other former
GM Anderson facility. Based on the Company's experience to date, the terms of
the indemnification in the GM acquisition agreement and GM's continuing
performance in responding to these conditions, the Company does not believe any
future costs of responding to these on-site environmental conditions would have
a material adverse affect on the Company's operations, business or financial
condition.

     In connection with its acquisition of facilities and businesses from GM,
Nabco, A&B Group, Autovill, Power, World Wide, Ballantrae, Lucas Varity, Electro
Diesel Rebuild, Electro Rebuild Tunisia, Atlantic Reman Limited, Williams
Technologies, Elmot, Mazda, PAS and M&M Knopf Autoparts, Inc. ("Knopf"), the
Company and/or its subsidiaries obtained various indemnities for certain claims
related to on-site and/or off-site environmental conditions and violations of
Environmental Laws which arose prior to such acquisitions. The environmental
indemnities are subject to certain deductibles, caps, cost sharing and time
limitations depending on the nature and timing of the environmental claim.

     The Comprehensive Environmental Response, Compensation, and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"), imposes joint and several liability for releases of certain
Hazardous Substances into the environment. The Company has received requests for
information or notifications of potential liability from the EPA under CERCLA
for certain off-site locations. The Company has not incurred any significant
costs relating to these matters, and based on the existence of certain
indemnification agreements from its predecessors and their assumption of
liabilities to date and other legal defenses, the Company believes that it will
not incur material costs in the future in responding to conditions at these
sites.

     The Resource Conservation and Recovery Act ("RCRA") and the regulations
thereunder and similar state counterparts to this law regulate hazardous wastes.
The Anderson, Indiana facilities that the Company originally leased from GM were
once part of a larger industrial complex owned and operated by GM (the "GM
Complex"). Since 1990 (when owned by GM), the GM complex has been undergoing
investigation and corrective action under RCRA. Based on the indemnities from GM
and the lack of any claim to date by GM for any compensation by the Company, the
Company believes that any future costs associated with the RCRA corrective
action will not have a material adverse effect on the Company's results of
operations, business or financial condition.

     The Company's subsidiaries are in the process of terminating various leases
and/or shutting down operations at various redundant facilities. In connection
with this activity, the subsidiaries evaluate environmental conditions as
required under the applicable lease and intend to address any discovered
conditions for which they are responsible. The Company does not believe the
environmental obligations in connection with these terminations or closures will
result in costs that will have a material adverse effect on the Company's
results of operations, business or financial condition.

                                       11

<PAGE>

     Franklin Power Co., Inc. in Franklin, Indiana has been undergoing a RCRA
site investigation and clean-up of volatile organic compounds in the soil and
groundwater pursuant to an EPA Administrative Order on Consent ("EPA Order")
issued to both Franklin Power Products, one of the subsidiaries of the Company,
and Amphenol Corporation, a prior owner of the property. Pursuant to the EPA
Order, Franklin Power Products and Amphenol Corporation are jointly addressing
this matter. Amphenol indemnified Franklin Power Products for certain
liabilities associated with the EPA Order and Amphenol has satisfied and
continues to satisfy the requirements of the EPA Order. Based on the experience
to date and the indemnities from Amphenol and the sellers of Franklin Power
Products to the Company, the Company believes that future costs associated with
this site will not have a material adverse effect on the Company's results of
operations, business or financial condition.

     Nabco Inc.'s (a subsidiary of the Company) Marion, Michigan facility was
listed on Michigan's state list of contaminated sites since 1993 because of
Hazardous Substances in the soils and groundwater at the facility. Based on
recent sampling results submitted to the Michigan environmental authority in
September 2001, Nabco believes that no further work will be required and
requested that the site be removed from the state list. Even if the Michigan
environmental authority was to require further investigation or remedial action
with respect to this matter, the Company does not believe that costs in
connection with this matter will have a material adverse effect on the Company's
results of operations, business or financial condition.

Backlog

     The majority of the Company's products are not on a backlog status. They
are produced from readily available materials and have a relatively short
manufacturing cycle. For products supplied by outside suppliers, the Company
generally purchases products from more than one source. The Company expects to
be capable of handling the anticipated sales volumes for the next fiscal year.

Seasonality

     The Company's business is seasonal, as its major OEM customers historically
have one or two week shutdowns of operations during July. In response, the
Company typically has shut down its own operations for one week each July,
depending on backlog, scheduled maintenance and inventory buffers, as well as an
additional week during the December holidays. Consequently, the Company's
results in the third and fourth quarters reflect the effects of these shutdowns.

ITEM 2  PROPERTIES

     The world headquarters of the Company are located at 2902 Enterprise Drive,
Anderson, Indiana 46013. The Company leases its headquarters. The following
table sets forth certain information regarding manufacturing and certain other
facilities operated by the Company as of December 31, 2002.

<TABLE>
<CAPTION>
                                      Number
     Location                      Of Facilities                  Use                       Owned/Leased
--------------------------------------------------------------------------------------------------------
<S>                                <C>                    <C>                               <C>
Anderson, IN                             3                Office                                Leased
Anderson, IN                             7                Manufacturing                         Leased
Anderson, IN                             1                Testing                               Leased
Anderson, IN                             1                Warehouse                             Leased
Atlanta, GA                              1                Warehouse/Office                      Leased
Bay Springs, MS                          1                Manufacturing                         Leased
Brooklyn, NY                             2                Warehouse/Office                      Leased
Brusque, Brazil                          1                Manufacturing                         Leased
Budapest, Hungary                        1                Warehouse                              Owned
Buffalo, NY                              2                Warehouse                             Leased
Chantilly, VA                            1                Manufacturing/Office/Warehouse        Leased
Cradler Health, United Kingdom           1                Manufacturing/Warehouse               Leased
Dallas, TX                               1                Manufacturing/Office                  Leased
Droitwick, Worcestshire,
 United Kingdom                          1                Office                                Leased
Edinburgh, IN                            1                Manufacturing                         Leased
</TABLE>

                                       12

<PAGE>

<TABLE>
<CAPTION>
                                      Number
     Location                      Of Facilities                      Use                          Owned/Leased
-----------------------------------------------------------------------------------------------------------------
<S>                                <C>                        <C>                                  <C>
Edmonton, Canada                         3                    Manufacturing/Warehouse                   Leased
Findlay, OH                              1                    Manufacturing                             Leased
Flint, MI                                1                    Warehouse/Office                          Leased
Fort Wayne, IN                           1                    Warehouse                                 Leased
Fradley, United Kingdom                  1                    Manufacturing/Office/Warehouse            Leased
Franklin, IN                             4                    Manufacturing/Office/Warehouse             Owned
Hancock, MD                              1                    Warehouse/Office                          Leased
Heverlee, Belgium                        1                    Office                                    Leased
Heidelberg, MS                           1                    Warehouse                                 Leased
Heist Op Den Berg, Belgium               4                    Office/Manufacturing/Warehouse            Leased
Indianapolis, IN                         2                    Warehouse                                 Leased
Jacksonville, FL                         1                    Manufacturing/Office/Warehouse            Leased
Menzel Harb, Tunisia                     1                    Manufacturing                             Leased
Kaleva, MI                               1                    Manufacturing                             Leased
S. Kearny, NJ                            1                    Warehouse                                 Leased
Kings Winford, United Kingdom            1                    Manufacturing                             Leased
Kyoungnam, South Korea                   2                    Manufacturing/Warehouse                    Owned
Laredo, TX                               1                    Warehouse                                 Leased
Lavant, United Kingdom                   1                    Manufacturing                             Leased
Leicester, United Kingdom                1                    Manufacturing/Warehouse                   Leased
Mansfield, TX                            1                    Manufacturing                             Leased
Marion, MI                               1                    Manufacturing                             Leased
Memphis, TN                              1                    Warehouse                                 Leased
Meridian, MS                             2                    Warehouse/Office                          Leased
Mezokovesd, Hungary                      1                    Manufacturing                              Owned
Miskolc, Hungary                         1                    Manufacturing                             Leased
Moncton, Canada                          1                    Warehouse                                 Leased
Peru, IN                                 7                    Manufacturing                             Leased
Philadelphia, PA                         2                    Warehouse                                 Leased
Piscataway, NJ                           1                    Office/Warehouse                          Leased
Plainfield, IN                           1                    Warehouse                                 Leased
Raleigh, MS                              4                    Manufacturing/Warehouse                Leased/Owned
Reed City, MI                            3                    Manufacturing/Warehouse                    Owned
Ridgeville, SC                           2                    Manufacturing                          Leased/Owned
Sao Paulo, Brazil                        1                    Warehouse                                 Leased
San Luis Potosi, Mexico                  5                    Manufacturing                             Leased
Saskatoon, Canada                        1                    Warehouse                                 Leased
Seoul, South Korea                       1                    Office                                    Leased
Shubuta, MS                              1                    Warehouse                                 Leased
Sligo, Ireland                           1                    Manufacturing/Office                      Leased
Spartanburg, SC                          1                    Warehouse                                 Leased
Summerville, SC                          6                    Manufacturing/Warehouse/Office            Leased
Swidnica, Poland                         1                    Manufacturing                             Leased
Sylvarena, MS                            1                    Office/Testing                            Leased
Taylorsville, MS                         1                    Manufacturing                             Leased
Toledo, OH                               1                    Retail                                    Leased
Troy, MI                                 1                    Office                                    Leased
Warren, MI                               1                    Manufacturing                              Owned
Winchester, VA                           2                    Office/Manufacturing/Warehouse            Leased
Winnepeg, Canada                         3                    Manufacturing/Warehouse                    Owned
</TABLE>

     The Company believes all facilities are suitable for their intended
purpose, are being efficiently utilized and provide adequate capacity to meet
demand for the next several years.

                                       13

<PAGE>

ITEM 3  LEGAL PROCEEDINGS

     From time to time, the Company is party to various legal actions in the
normal course of its business.

     Remy Mexico Holdings, S. de R.L. de C.V. ("RMH"), an indirect subsidiary of
the Company, and GCID Autopartes, S.A. de C.V. ("GCID") are parties to a series
of agreements, including a partnership agreement. The partnership agreement
created Delco Remy Mexico, S. de R.L. de C.V. ("DRM") which operates certain
manufacturing facilities in Mexico. GCID is the minority partner with a 24%
ownership interest. RMH and GCID signed a letter of intent on or about May 3,
2000, whereby GCID agreed to terminate certain of the agreements in exchange for
a $13,000,000 termination payment by RMH to GCID, but the transaction was never
finalized. In June 2001, GCID declared RMH in default under the partnership
agreement, alleging that RMH failed to conduct the business of the partnership
in accordance with that agreement. In August 2001, GCID instituted an
arbitration proceeding before the American Arbitration Association seeking
damages for the alleged breaches of the partnership agreement and breaches of
fiduciary duty. RMH has denied any such breaches.

     On January 2, 2002, GCID notified RMH that it was terminating the
partnership for the alleged breach of the partnership agreement by RMH and
demanded that RMH purchase GCID's partnership interest in DRM. On March 11,
2002, GCID filed the First Amended Arbitration Demand adding additional claims
and parties, including DRM and other affiliates of RMH: Remy Componentes. S. de
R.L. de C.V. and Delco Remy America, Inc. (together with RMH, the "Named
Parties"). The First Amended Demand seeks damages for breach of fiduciary duty,
breaches of various contracts between and among the various parties, and
tortious interference with contractual relations. The damages include a claim of
approximately $13,000,000 for the purchase of GCID's interest in the Company and
a claim for $17,000,000 for the alleged breach of a Service Agreement between
the Company and GCI Services, S.A. de C.V. ("GCIS"), an affiliate of GCID,
pursuant to which GCIS provides labor to the Partnership. On September 30, 2002,
GCID and GCIS served expert reports claiming that GCID is owed approximately
$23,300,000 for the purchase of its partnership interest in DRM and that GCIS is
owed approximately $17,650,000 under the Service Agreement.

     On January 24, 2003, GCID and GCIS filed a Second Amended Arbitration
Demand adding additional claims of breach of contract against the Named Parties.
On January 31, 2003, the Named Parties filed an Answer to the Second Amended
Demand denying liability for all claims. The arbitration hearing is scheduled to
begin May 19, 2003.

     The Company disputes all of the claims alleged in both the First and Second
Amended Arbitration Demands and denies any liability for damages to GCID or any
of its affiliates. GCIS continues to provide services to DRM. In addition,
another affiliate of GCID, Sistemas y Componentes Electricos, S.A. de C.V.,
continues to be the leaseholder of the premises occupied by DRM.

     The Company believes that the Named Parties have meritorious defenses to
the action, but it is unable to predict whether the proceeding will have a
material adverse effect on the Company.

     Remy Reman facilities in Mississippi and the World Wide facility in
Virginia have identified certain possible violations of state air laws and
notified the applicable state agencies under the state voluntary audit
disclosure rules. The state agencies have either requested further information
or have not responded to the subsidiaries. The subsidiaries have or are in the
process of responding to the information requests, and they are currently in
compliance with the air permit requirements. At this time, it is unknown whether
the state environmental agencies intend to pursue enforcement actions for the
past violations or whether penalties, if sought, will be less than $100,000.

ITEM 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of security holders during the
quarter ended December 31, 2002.

                                       14

<PAGE>

                                    PART II

ITEM 5  MARKET FOR REGISTRANT'S COMMON EQUITY AND
        RELATED STOCKHOLDER MATTERS

Market Information

     On February 7, 2001, the Company agreed to a going private transaction with
its largest stockholder, Court Square Capital Limited ("Court Square"), pursuant
to which Court Square made a cash tender offer for all of the Company's common
stock not owned by Court Square. Following completion of the tender offer on
February 23, 2001, an affiliate of Court Square merged with the Company and the
merger eliminated the remaining common stock not owned by Court Square. The
aggregate consideration for the shares purchased in the tender offer and the
merger was about $104.2 million. The Company did not incur any indebtedness in
connection with the tender offer and merger. Following completion of the merger
on March 14, 2001, the New York Stock Exchange delisted the Company's common
stock, and the Company terminated the registration of its common stock under the
Securities Exchange Act of 1934. There is currently no established public market
for the outstanding common equity of the Company.

Holders

     The approximate number of record holders of each of the classes of the
Company's common stock as of March 15, 2003 were as follows:


           Class A Common Stock                        1
           Class B Common Stock                       16
           Class C Common Stock                        1

Dividends

     The ability of the Company to pay dividends is restricted by certain
covenants contained in the Company's Senior Credit Facility, as well as certain
restrictions contained in the Company's indentures relating to its senior notes
and its subordinated notes.

ITEM 6  SELECTED FINANCIAL DATA

     The following table presents selected consolidated financial data of the
Company for the fiscal years ending July 31, 1998 through 2000, the five month
transition period ended December 31, 2000, and the years ended December 31, 2002
and 2001 (dollars in thousands).

<TABLE>
<CAPTION>
                                          Year Ended            Five Months Ended
                                          December 31              December 31                Year Ended July 31
                                   --------------------------------------------------------------------------------------
                                       2002          2001        2000        1999        2000        1999        1998
                                   --------------------------------------------------------------------------------------
                                                                         (Unaudited)
<S>                                <C>          <C>          <C>         <C>         <C>          <C>         <C>
Net sales                          $ 1,069,352  $ 1,007,152  $  442,200  $  421,203  $ 1,032,854  $  882,478  $  765,397
Income (loss) from
 continuing operations (a)                 579      (47,861)     10,336       9,915       14,159      23,133      (5,649)
Total assets                           849,460      947,231     924,470     816,757      889,240     782,663     684,997
Long-term obligations and
 redeemable preferred stock            870,456      837,877     519,284     447,475      484,270     434,931     393,806
Cash dividends declared per
 common share                               NA           NA          --          --           --          --          --
</TABLE>

(a) The results of acquired companies are included in operations from date of
    acquisition. Pro forma results of operations for acquisitions are presented
    in Note 1 to the consolidated financial statements. Results for the year
    ended December 31, 2001 and fiscal years ending July 31, 2000 and 1998
    include restructuring charges of $20,724, $22,190 and $16,227, respectively,
    after income taxes. Results for the year ended December 31, 2001 include
    special charges totaling $20,114 after income taxes. See Notes to
    Consolidated Financial Statements.

                                       15

<PAGE>

ITEM 7  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
and is qualified in its entirety by reference to the Company's consolidated
financial statements and accompanying notes. Except for historical information,
the discussions in this section contain forward-looking statements that involve
risks and uncertainties. Future results could differ materially from those
discussed below.

     The Company changed its fiscal year end to December 31, effective August 1,
2000. Prior to August 1, 2000, the fiscal year ended on July 31. Accordingly,
the Company's audited financial statements include a balance sheet at December
31, 2000 and statements of operations, stockholders' equity and cash flows for
the five-month transition period ended December 31, 2000. Unaudited statements
of operations for the year ended December 31, 2000 and the five months ended
December 31, 1999, have been provided for management's discussion and analysis
of results of operations.

General

     The Company manufactures and remanufactures electrical and
powertrain/drivetrain components for the aftermarket and OEM market and provides
core exchange services. The Company sells its products principally in North
America, Europe, Latin America and Asia-Pacific to OEMs, warehouse distributors
and retail automotive parts chains.

     Results for Tractech, which manufactures traction control devices, and
Kraftube, which manufactures components for the air-conditioning industry, are
referred to as non-core businesses. These non-core businesses were sold in the
first quarter of 2003 (see Note 21 to the financial statements) and will be
reported as discontinued operations beginning in 2003. Prior period results will
be reclassified accordingly.

     The demand for components in the OEM market is cyclical. The Company
believes that opportunities for growth in the OEM market will continue to come
primarily through the introduction of new products and expansion of the
Company's global operations. The Company believes that its aftermarket and OEM
products are complementary and provide the Company with a competitive advantage
in meeting customer needs and maintaining the high levels of expertise necessary
to compete successfully in both markets. The Company believes that the high
capability and expertise required to meet the stringent technology and quality
requirements of OEM customers provides the Company with a competitive advantage
in the development and production of products for the aftermarket.

     The aftermarket is highly fragmented and competitive. The Company believes
that aftermarket suppliers are consolidating. The Company believes that this
consolidation is occurring, in part, because of higher quality standards for
remanufactured products, which may be more expensive or technically difficult
for smaller remanufacturers to meet. The Company plans to continue to increase
its penetration of the aftermarket through internal growth and strategic
acquisitions.

     The primary components of cost of goods sold in the Company's products
include component parts, material, labor costs, overhead and the cost of cores.
While the availability and cost of cores fluctuate based on supply and demand,
the Company's relationships with dealers and other customers have historically
provided it with sufficient access to cores at favorable prices. The Company
believes that the acquisition of Knopf, one of the world's largest automotive
components recovery and exchange companies, provides a key competitive advantage
in the area of core management.

     Approximately 14% of the Company's domestic hourly labor force is
represented by the UAW. The Company's current agreement with the UAW ends in
March 2003. On January 7, 2003, the Company announced that it will close its
Delco Remy America starter and alternator manufacturing operations in Anderson,
Indiana during the first quarter of 2003. The plant closure will effect the 350
hourly workers represented by the UAW and approximately 50 salaried employees
currently supporting these plants. The Company is currently in negotiations with
the UAW concerning the severance payments to be made by the Company to the
hourly labor force represented by the UAW. Under provisions of the current
agreement, the UAW and the Company developed special programs of incentives for
hourly employees who agree to leave the Company. The cost of these programs is
included in the restructuring charges in fiscal years 2001 and 2000. The Company
has implemented its strategy of shifting production to focus factories, which
the Company believes has reduced costs and will continue to reduce costs as
these focus factories continually improve and implement lean manufacturing
concepts (See Note 21 to the financial statements).

     Since 1994, the Company has seen significant growth through strategic
acquisitions and joint ventures which have broadened the Company's product line,
expanded its manufacturing and remanufacturing capability, extended its
participation in international markets and increased its penetration of the
retail automotive parts channel. As a result, net sales to customers other than
GM increased from 41% of total sales in fiscal year 1995 to 77% in 2002. Sales
outside of the Class 8 heavy duty truck market have increased from 87% of total
sales in fiscal year 1995 to 95% in 2002.

                                       16

<PAGE>

     GM accounted for about 43% of the Company's total OEM sales in 2002. GM SPO
accounted for about 9% of total after-market sales in 2002. In connection with
the Company's separation from GM, GM entered into long-term contracts to
purchase from the Company 100% of GM's North American requirements for
automotive starters (other than for Saturn and Geo) and 100% of GM's U.S. and
Canadian requirements for heavy duty starters and alternators. GM's obligations
to purchase the Company's products in the future are subject to such products
remaining competitive as to price, technology and design. GM's obligation to
purchase automotive starters from the Company terminates on August 31, 2008.
GM's obligation to purchase heavy duty starters and alternators from the Company
terminated on July 31, 2000. The Company cannot be sure that GM will not develop
alternative sources for components currently produced by the Company and
purchase some or all of GM's requirements from alternative sources.

     In addition, GM SPO has been designated as an exclusive distributor of a
significant amount of the Company's automotive aftermarket products and as a
distributor of the Company's heavy duty aftermarket products. The Company's
exclusive distribution arrangements with GM SPO for the Company's automotive
aftermarket products terminates on July 31, 2009. The Company distribution
arrangement with GM SPO is renewable on an annual basis for the Company's heavy
duty aftermarket products.

     On January 7, 2003, the Company announced that it will close its Delco Remy
America starter and alternator manufacturing operations in Anderson, Indiana
during the first quarter of 2003. Production at these plants will be absorbed by
other Company plants globally. The wind down of the Anderson manufacturing
operations will affect approximately 350 hourly UAW represented employees and
approximately 50 salaried employees currently supporting these plants.

     On March 18, 2003, the Company announced it would close, by year-end, its
electrical remanufacturing business, NABCO, located in Reed City, Michigan. The
wind down of the Reed City remanufacturing operations will affect approximately
200 employees. The NABCO facilities in Kaleva and Marion, Michigan, will
continue to remanufacture components for Delphi and other selected customers.

     In the second quarter of 2002, the Company concluded that its retail
aftermarket gas engine business did not fit with its strategic objectives and
completed plans to exit the business. In connection with discontinuing the
business, a charge of $28.2 million was recorded in 2002 to write down the
relevant assets to their estimated realizable value. An additional charge of
$2.8 million was recorded in 2002 for the estimated cost of employee termination
benefits and closure of facilities. Operating results for this business are
reported under discontinued operations on the Company's consolidated statements
of operations, balance sheets and consolidated statements of cash flows.

     In the fourth quarter of 2001, the Company completed plans for the closure
and realignment of certain manufacturing facilities and administrative functions
in the United States, Canada and Europe. These actions were in response to
anticipated OEM and aftermarket volume declines and support the Company's
ongoing efforts to reduce cost and improve efficiencies. A one-time charge of
$39.3 million was recorded in the fourth quarter of 2001 for the estimated cost
of the plan. The charge included $26.7 million for the estimated cost of various
voluntary and involuntary employee separation programs associated with the
resulting workforce reductions of approximately 820 employees. A total of $2.5
million and $15.0 million were paid in 2001 and 2002, respectively, and $4.6
million and $4.7 million are estimated to be paid in 2003 and 2004, respectively
for these programs. The charge also included $8.2 million, net of salvage value,
for the write-down of certain assets which will no longer be used as a result of
the closures and realignments, and $4.4 million of other costs.

     In May 2000, the Company completed plans for the realignment of certain
manufacturing facilities in the United States, Canada and the United Kingdom. A
charge of $35.2 million was recorded in the fourth quarter of fiscal 2000 for
the estimated cost of the plan, which included various employee separation
programs and the write-down of certain production assets. Cash payments relative
to this charge were $5.0 million, $16.0 million, $3.1 million and $2.9 million
in fiscal 2000, the five months ended December 31, 2000 and the years 2001 and
2002, respectively. Payments are expected to be approximately $0.1 million in
2003.

     At December 31, 2002, the Company was in negotiations with Delphi
Corporation to purchase certain portions of its generator business. In the
fourth quarter of 2002, the Company completed the acquisition of intellectual
property rights for the light duty alternator product line and certain other
assets for production of automotive alternators. Additional agreements are
expected to be completed in 2003.

                                       17

<PAGE>

     The following table sets forth unaudited results of operations for the year
ended December 31, 2000 and certain statements of operations data expressed as a
percentage of sales:

<TABLE>
<CAPTION>
                                                                                     As a Percentage of Net Sales
                                                                         ---------------------------------------------
                                                                                                             Five
                                                               Year         Year     Year      Year      Months Ended
                                                               Ended        Ended    Ended     Ended     December 31
                                                              Dec. 31      Dec. 31  Dec. 31   Dec. 31 ----------------
                                                               2000         2002     2001      2000      2000     1999
                                                        --------------------------------------------------------------
                                                          $ in millions
                                                           (unaudited)
<S>                                                     <C>              <C>       <C>       <C>       <C>       <C>
Net sales                                                  $ 1,033.9     100.0%    100.0%    100.0%    100.0%    100.0%
Cost of goods sold                                             813.3      83.3      81.6      78.7      79.7      80.0
Special charges - cost of goods sold                              --        --       1.6        --        --        --
                                                        --------------------------------------------------------------
Gross profit                                                   220.6      16.7      16.8      21.3      20.3      20.0
Selling, general and administrative expenses                   101.9       9.5       9.9       9.8      10.1      10.1
Special charges - SG&A                                            --        --       1.6        --        --        --
Amortization of goodwill and intangibles                         5.9       0.1       0.7       0.6       0.6       0.5
Restructuring charges                                           31.4        --       3.3       3.0        --        --
                                                        --------------------------------------------------------------
Operating income                                                81.4       7.1       1.3       7.9       9.6       9.4
Interest expense and other non-operating items                 (48.0)     (5.6)     (5.8)     (4.7)     (4.9)     (4.5)
                                                        --------------------------------------------------------------
Income (loss) from continuing operations before
  income taxes, minority interest in income of
  subsidiaries, loss from unconsolidated joint
  ventures, extraordinary items and cumulative
  effect of change in accounting principle                      33.4       1.5      (4.5)      3.2       4.7       4.9
Income taxes (benefit)                                          11.3       0.7      (0.9)      1.1       1.5       1.8
Minority interest in income of subsidiaries                     (6.7)     (0.4)     (0.9)     (0.6)     (0.7)     (0.7)
Loss from unconsolidated joint ventures                         (0.8)     (0.4)     (0.3)     (0.1)     (0.1)       --
                                                         -------------------------------------------------------------
Net income (loss) from continuing operations before
  extraordinary items and cumulative effect of change
  in accounting principle                                       14.6        --      (4.8)%     1.4%      2.4%      2.4%
                                                          =============================================================

</TABLE>

Results of Operations

Year Ended December 31, 2002 Compared To Year Ended December 31, 2001

     In 2001, the Company recorded special charges totaling $32.4 million, $16.2
million of which was reported as a deduction to gross profit and $16.2 million
of which was charged to other operating expenses. The deduction to gross profit
included $13.8 million attributable to higher than anticipated warranty costs
relative to a limited class of heavy-duty OEM alternators. The design and
production issues, which caused the unusually high level of claims, were
corrected. The special warranty charge included $8.2 million for claims in 2001
and $5.6 million for anticipated future claims. The charge was adequate to cover
all relevant claims. An additional $2.4 million was charged to gross profit to
record the write down of inventory and certain customer claims relative to the
Company's 2001 restructuring actions in non-core businesses. The $16.2 million
charged to operating expenses consisted primarily of disputed items related to
the GM acquisition. In the fourth quarter of 2001, the Company conceded these
claims in connection with the negotiation of other long-term agreements with GM
and Delphi.

Net Sales

     Net sales of $1,069.4 million in 2002 increased $62.2 million, or 6.2%,
from $1,007.2 million in 2001. Automotive OEM sales increased $24.8 million due
primarily to volume growth driven by strong customer demand. Heavy duty OEM
sales were up $1.1 million due to customer pull ahead of Class 8 products in the
third quarter in advance of forthcoming changes in engine technology required by
Environmental Protection Agency regulations and sales incentives initiated by
certain customers in the fourth quarter, partially offset by lower volume in
Europe. Electrical aftermarket sales grew $26.5 million due to retail market
share gains, partially offset by lower OEM service parts volume. Sales of
remanufactured

                                       18

<PAGE>

transmissions and diesel engines increased $5.3 million due to the acquisition
of Mazda North American Operations ("Mazda NA"), and AutoMatic Transmissions
International A/S ("AMT") in 2001 ($10.1 million), partially offset by lower
sales as a result of market softness. Third party sales in the core services
business increased $1.9 million in 2002. Sales in non-core businesses increased
$2.6 million in 2002.

Gross Profit

     Gross profit of $179.1 million increased $10.4 million, or 6.2%, in 2002
from $168.7 million in 2001, and as a percentage of net sales was 16.7% in both
years. Excluding a post-employment benefit curtailment gain recorded in 2002 and
special charges recorded in 2001, gross profit decreased $10.2 million, or 5.5%,
and as a percentage of net sales declined from 18.4% in 2001 to 16.3% in 2002.
Automotive OEM gross profit increased $16.7 million due to higher sales volume,
improved operating efficiency and a $1.8 million curtailment gain recorded in
the first quarter of 2002, offset by the negative impact of strengthening
foreign currencies on costs in foreign production facilities. Excluding the
curtailment gain, Automotive OEM gross profit increased $14.9 million. Heavy
duty OEM gross profit increased $15.0 million and, excluding the $2.6 million
curtailment gain recorded in the first quarter of 2002 and the special warranty
charges of $13.8 million in 2001, decreased $1.4 million in 2002 due to lower
sales volume in Europe. Electrical aftermarket gross profit decreased $20.3
million in 2002 due to a higher ratio of retail sales (which generate lower
margins) to OEM service parts sales, price reductions and start-up costs of new
programs. Gross profit on remanufactured transmissions and diesel engines
decreased $5.9 million in 2002 due to lower sales and the resulting negative
impact on overhead absorption and labor efficiency, partially offset by the
effect of the acquisitions of Mazda NA and AMT in 2001 ($3.9 million). Margins
in the aftermarket overall were depressed by the emphasis on increased usage of
cores in remanufacturing. While this has helped to conserve cash, it generated
higher levels of scrappage of the underlying cores. Gross profit on core
services increased $3.2 million in 2002 due to higher sales volume. Gross profit
from non-core businesses increased $1.6 million due to higher sales and improved
operating efficiencies. In all business units, the Company realized the initial
benefits of the restructuring actions initiated in the fourth quarter of 2001.

Selling, General and Administrative Expense

     Selling, general and administrative expenses ("SG&A"), excluding the $16.2
million special charge in 2001, increased $2.0 million, or 2.1%, in 2002
compared with 2001. As a percentage of net sales, SG&A expenses improved to 9.5%
in 2002 from 9.8% in 2001. The increase in year over year spending reflects
investments in marketing programs, particularly in Europe. Offsetting these
increases were the effects of cost and business process improvement programs
initiated in the fourth quarter of 2001 and overall spending reductions
throughout the Company.

Operating Income

     Operating income of $76.6 million in 2002 compares with operating income of
$13.1 million in 2001. Excluding the $4.4 million curtailment gain in 2002 and
the special charges totaling $32.4 million, the restructuring charge of $33.4
million and goodwill amortization of $6.7 million in 2001, operating income of
$72.2 million in 2002 declined $13.5 million, or 15.7%, from $85.7 million in
2001, and as a percentage of net sales was 6.8% compared with 8.5% in 2001. This
change was the result of sales, gross profit and SG&A expense factors
discussed above.

Interest Expense, Net

     Interest expense, net, increased $2.4 million to $58.9 million in 2002
compared to $56.6 million in 2001. This increase was due to higher levels of
debt to fund acquisitions ($1.8 million), the higher rate associated with the
11% Senior Subordinated Notes Due 2009 issued on April 26, 2001 ($1.5 million)
and increased funding requirements for investing and financing activities ($1.2
million). These increases were partially offset by increased cash from operating
activities ($0.6) and $1.6 million of interest income relative to a Federal
income tax refund received in 2002. Interest expense included in results of
discontinued operations was $6.5 million in 2002 and $4.3 million in 2001.

Non-operating Income (Expense)

     Non-operating expense, net, of $1.8 million in 2002 compares with
non-operating income, net, of $1.8 million in 2001. Net foreign currency
transaction losses of $0.5 million were recorded in 2002 compared with net gains
of $0.4 million recorded in 2001. This year over year decline was due primarily
to strengthening foreign currencies versus functional currencies in 2002,
particularly in the fourth quarter. In addition, the Company recorded charges of
$1.7 million in 2002 to write off deferred costs relative to acquisition
projects that were terminated.

                                       19

<PAGE>

Income Taxes

     The Company's consolidated effective income tax rate was 45.4% in 2002
compared with 22.0% benefit in 2001. At December 31, 2002, the Company had
unrecognized tax net operating loss carryover, research credits and alternative
minimum tax credits of $162.1 million, $1.7 million and $2.9 million,
respectively. The increase in the effective income tax rate year over year was
due primarily to taxable dividends (primarily intercompany) paid in 2002 which
are not deductible for financial reporting purposes and an $18.0 million
addition to the reserve for the value of tax assets in excess of their estimated
future recognizable value in 2001.

Minority Interest in Income of Subsidiaries

     Minority interests' share of earnings of the Company's consolidated
subsidiaries were $4.2 million in 2002 compared with $9.3 million in 2001. This
year over year decrease reflects the Company's purchase of additional shares
from the minority shareholders of World Wide, Power and Delco Remy Korea. In
addition, earnings in 2002 for Delco Remy Korea were negatively affected by a
change in transfer pricing between Delco Remy Korea and a U.S. subsidiary of the
Company, which, accordingly, reduced the minority interests' earnings.

Loss From Unconsolidated Joint Ventures

     The loss from unconsolidated joint ventures increased by $0.9 million to
$3.8 million in 2002 compared with $2.9 million in 2001 due primarily to
increased research and development activity at iPower Technologies, L.L.C.
("iPower").

Discontinued Operations

     The loss from discontinued operations before income tax in 2002 of $57.8
million consisted of operating losses of $20.3 million, interest expense of $6.5
million, restructuring charges for closure of facilities and employee separation
costs totaling $2.8 million and the estimated loss on disposal of $28.2 million.
Estimated future taxable income relative to discontinued operations, both in the
United States and Canada, and reversing taxable temporary differences, are not
sufficient to absorb the losses recorded in 2002. Therefore, a valuation
allowance equal to the 2002 income tax effect of losses was established. The
loss from discontinued operations before income tax in 2001 of $32.3 million
consisted of operating losses of $22.3 million, interest expense of $4.3 million
and restructuring charges of $5.7 million.

Extraordinary Items

     In 2002, the Company recorded an extraordinary charge of $1.1 million, net
of income taxes of $0.7 million, in connection with the early retirement of its
$200 million revolving credit facility. In 2001, the Company recorded an
extraordinary gain of $0.7 million, net of income taxes of $0.4 million, in
connection with the early retirement of the 8% Subordinated Debenture ("GM
Subordinated Debenture") issued to GM by Delco Remy America.

Cumulative Effect of Change in Accounting Principle

     In accordance with the provisions of Statement of Financial Accounting
Standards No. 142, the Company recorded a $74.2 million charge to write down
goodwill in certain of its operations, effective in the first quarter of 2002.
There was no income tax effect on this charge.

Year Ended December 31, 2001 Compared To Year Ended December 31, 2000

Net Sales

     Net sales of $1,007.2 million in 2001 declined $26.7 million, or 2.6%, from
$1,033.9 million in 2000. Automotive OEM sales decreased $62.9 million due to
reduced orders from GM, partially offset by the acquisition of Elmot-DR Sp
z.o.o. ("Elmot") in the first quarter of 2000, and heavy duty OEM sales
decreased $53.8 million due to lower demand. Electrical aftermarket sales
increased $45.8 million due to higher demand and the acquisition of XL in the
first quarter of 2001 ($13.9 million). Sales of remanufactured transmissions and
diesel engines increased $45.1 million due to sales of previously consigned
inventory ($40.0 million), the acquisitions of Mazda NA and AMT in the second
quarter of 2001 ($10.5 million), partially offset by lower volume. Third party
sales in the core services business increased $2.3 million due to the
acquisition of Knopf in the second quarter of 2000 ($9.2 million), offset by
lower volume on a comparable period basis. Sales in non-core businesses declined
$3.2 million in 2002 due to lower demand.

                                       20

<PAGE>

Gross Profit

     Gross profit of $168.7 million declined $51.9 million, or 23.5%, in 2001
from $220.6 million in 2000. Excluding the special charges of $16.2 million
discussed above, gross profit declined $35.7 million, or 16.2%, and as a
percentage of sales declined from 21.3% to 18.4%. Automotive OEM gross profit
declined $18.5 million due to lower sales volume, offset by productivity
improvements. Heavy duty OEM gross profit declined $22.7 million due to the
$13.8 million special warranty charge and lower volume, partially offset by
productivity improvements. Electrical aftermarket gross profit was down $2.9
million due to reduced fixed manufacturing leverage, offset by the acquisition
of XL in 2001. Gross profit on remanufactured transmissions and diesel engines
increased $2.8 million due to the acquisitions of Mazda NA and AMT, partially
offset by lower volume. Gross profit on core services declined $4.3 million due
to lower volume on a comparable period basis, partially offset by the
acquisition of Knopf in 2000. Gross profit from non-core businesses was down
$6.3 million in 2001 compared with 2000 due primarily to lower sales volume.

Selling, General and Administrative Expense

     SG&A expenses, excluding the $16.2 million special charge in 2001, declined
$2.8 million, or 2.7%, in 2001 compared with 2000, and as a percentage of net
sales were 9.8% in 2001 and 9.9% in 2000. Successful cost reduction efforts were
partially offset by the effect of 2001 acquisitions.

Operating Income

     Operating income of $13.1 million in 2001 compares with operating income of
$81.4 million in 2000. Excluding the special charges totaling $32.4 million, the
restructuring charge of $33.4 million and goodwill amortization of $6.7 million
in 2001 and the restructuring charge of $31.4 million and goodwill amortization
of $5.8 million in 2000, operating income of $85.7 million in 2001 declined
$32.8 million from $118.5 million in 2000, and as a percentage of net sales was
8.5% compared with 11.5% in 2000. This change was the result of the sales, gross
profit and SG&A expense issues discussed above.

Interest Expense, Net

     Interest expense, net, of $56.6 million in 2001 increased $7.9 million
compared to $48.7 million in 2000. This increase was due to higher levels of
debt to fund operations ($1.9 million), the higher interest rate and fees
associated with the 11% senior subordinated debt issued in April 2001 ($4.8
million) and debt to fund acquisitions ($1.2 million). Interest expense included
in results of discontinued operations was $4.3 million in 2001 and $2.2 million
in 2000.

Non-operating Income (Expense)

     Non-operating income, net, of $1.8 million in 2001 compares with $0.7 in
2000. The year over year increase was due primarily to foreign currency
transaction gains.

Income Taxes

     The Company's consolidated effective income tax rate was 22.0% in 2001
compared with 33.8% in 2000. At December 31, 2001, the Company had unrecognized
tax net operating loss carryovers, research credits and alternative minimum tax
credits of $95.8 million, $1.5 million and $2.9 million, respectively. The
decrease in the effective income tax rate year over year was due primarily to an
$18.0 million addition to the reserve for the value of these tax assets that is
in excess of their estimated future recognizable value.

Minority Interest in Income of Subsidiaries

     Minority interests' share of earnings of the Company's consolidated
subsidiaries were $9.3 million in 2001 compared with $6.7 million in 2000. This
year over year increase reflects higher earnings in the relevant subsidiaries,
offset by the Company's purchase of additional shares from the minority
shareholders of World Wide and Power during 2001.

Loss From Unconsolidated Joint Ventures

     The loss from unconsolidated joint ventures increased from $0.8 million in
2000 to $2.9 million in 2001 due to the formation of a joint venture between the
Company and Hitachi Ltd. in July 2001 and the formation the iPower joint venture
in December 2000.

                                       21

<PAGE>

Discontinued Operations

     The loss from discontinued operations before income tax in 2001 of $32.3
million consisted of operating losses of $22.3 million, interest expense of $4.3
million and restructuring charges of $5.7 million. The loss from discontinued
operations before income tax in 2000 of $6.1 million consisted of restructuring
charges of $3.9 million and interest expense of $2.2 million.

Five Months Ended December 31, 2000 Compared to Five Months Ended December 31,
1999

Net Sales

     Net sales of $442.2 million increased $1.0 million, or 0.2%, due to sales
of Knopf ($23.9 million), which was acquired in March 2000, increased volume in
the electrical products aftermarket ($3.4 million) and higher sales of
remanufactured transmissions and diesel engines ($2.0 million). These increases
were offset by lower demand from customers in the heavy duty OEM market ($23.6
million) and reduced orders from GM and other customers in the OEM automotive
products market ($4.7 million).

Gross Profit

     Gross profit of $85.6 million increased $1.1 million, or 1.4%, and as a
percentage of sales was 20.3% in the five month period of 2000 and 20.0% in the
comparable period of 1999. The increase in gross profit was due to increased
volume in the electrical aftermarket ($5.3 million), the acquisition of Knopf
($4.1 million) and higher volume of remanufactured transmissions and diesel
engines ($2.5 million). These increases were offset by lower volume and product
mix in the heavy duty OEM market ($9.4 million) and lower volume and product mix
in the OEM automotive market ($1.4 million). These volume and product mix
declines were mitigated by cost improvements, including realization of cost
savings associated with June 2000 manufacturing realignment.

Selling, General and Administrative Expenses

     SG&A expenses of $42.6 million in the five months ended December 31, 2000
were unchanged from the comparable period in 1999, and, as a percentage of net
sales, were 10.1% in both periods. The realization of cost reductions associated
with the June 2000 realignment were partially offset by costs associated with
the acquisition of Knopf.

Operating Income

     Operating income of $40.5 million increased $1.2 million, or 2.9%, and as a
percentage of net sales improved to 9.6% in the five months of 2000 compared
with 9.3% in the five months of 1999. This improvement reflects the sales, gross
profit and SG&A issues discussed above.

Interest Expense, Net

     Interest expense, net, increased $2.1 million in the five months of 2000
due primarily to higher levels of debt incurred to finance acquisitions and
higher rates reflecting increases by the Federal Reserve. Interest expense
included in results of discontinued operations was $0.9 million in both the five
months of 2000 and 1999.

Non-operating Income (Expense)

     Non-operating income in the five month period of 2000 consisted primarily
of foreign currency transaction gains.

Income Taxes

     The Company's consolidated effective income tax rate of 32.2% in the five
month period ended December 31, 2000 compares with 37.5% in the comparable
period of 1999. This decrease reflects implementation of various tax planning
initiatives and acquisitions of foreign subsidiaries with lower rates.

                                       22

<PAGE>

Liquidity and Capital Resources

     The Company's short-term liquidity needs include required debt service
(including capital lease payments) day-to-day operating expenses, working
capital requirements and the funding of capital expenditures and restructuring
actions. Cash interest payments are expected to approximate $60.0 million in
2003. Long-term liquidity requirements include principal payments of long-term
debt and the funding of acquisitions, including arrangements to buy out minority
interests. The Company's principal payments on long-term debt and capital lease
obligations are presented in Note 8 to Consolidated Financial Statements. The
Company's principal sources of cash to fund its short-term liquidity needs
consist of cash generated by operations, divestitures and borrowings under the
$250 million Senior Credit Facility. At December 31, 2002, borrowings under the
Senior Credit Facility were $120.9 million ($120.4, net of cash), and letters of
credit totaled $6.8 million, leaving $122.3 million unused. Based on the
collateral supporting the Senior Credit Facility at December 31, 2002, $50.7
million was available, net of lines of credit.

     In connection with the separation from GM, one of the Company's
subsidiaries issued a contingent purchase price note to GM payable beginning in
2004. The amount of the payment will be based upon a percentage of the Company's
average earnings over the three-year period ending December 31, 2003 in excess
of certain imputed earnings. It is not currently possible to estimate the amount
of payments, if any, payable under this note. The Company will also be required
to make additional payments in connection with its acquisitions of Knopf, Delco
Remy Mexico, Delco Remy Korea, Mazda NA and AMT. The Company expects that the
aggregate amount of these additional payments will be in the range of $25
million to $38 million, payable over about four years. The Company granted
put/call options in connection with the acquisitions of World Wide and Power
that became exercisable in February 2001 for World Wide and March 2001 for
Power. The exercise prices that the Company will be required to pay in 2003 upon
exercise of the put options, which are based on earnings formulas, are currently
estimated to be about $11 million in total for the two acquisitions.

Year Ended December 31, 2002

     Cash provided by operating activities of continuing operations of $46.5
million in 2002 reflects net income from continuing operations, excluding
non-cash items, of $44.6 million, a reduction in working capital of $18.8
million and cash restructuring payments of $16.9 million. Accounts receivable
declined $5.8 million in 2002 due to accelerated collections through
arrangements with certain financial institutions ($16.7 million), partially
offset by increased fourth quarter sales. Inventories increased $5.5 million in
2002 due primarily to higher product returns in the aftermarket during the
fourth quarter, largely offset by increased core usage and other inventory
management efforts. Accounts payable increased $14.6 million year over year due
to timing of vendor payments. Cash restructuring payments consisted primarily of
employee termination benefits.

     Cash used in investing activities of continuing operations included
payments under contractual put agreements for Power ($5.6 million), World Wide
($5.4 million) and Delco Remy Korea ($5.5 million), a contingent purchase price
payment of $0.5 million relative to the acquisition of Mazda NA and $0.3 million
relative to the acquisition of certain parts of the Delphi alternator business.
Capital expenditures of $20.4 million consisted primarily of production
equipment and tooling. In 2002, the Company contributed $3.0 million to its
iPower joint venture.

     Cash provided by financing activities of continuing operations in 2002
consisted of net borrowings under its revolving line of credit and increased
borrowings in certain foreign operations. Deferred financing cost payments
totaling $7.8 million were made in 2002 in conjunction with the replacement of
the Company's prior senior credit facility. Cash payments of $1.8 million were
made to the minority shareholders of Delco Remy Korea in 2002.

     Cash outflows of discontinued operations of $24.7 million in 2002 consisted
of operating losses $26.8 million, excluding impairment and restructuring
charges and cash restructuring payments of $4.0 million, partially offset by
decreases in working capital.

Year Ended December 31, 2001

     Cash provided by operating activities of continuing operations in 2001 of
$15.8 million reflects income from continuing operations, excluding non-cash
items, of $53.4 million, an increase in working capital of $31.1 million and
cash restructuring payments of $6.5 million. The increase in working capital was
due to higher accounts receivable reflecting sales growth and a reduction of
accounts payable due to timing of vendor payments. Cash restructuring payments
consisted primarily of employee termination benefits.

                                       23

<PAGE>

     Cash used in investing activities of continuing operations included the
acquisitions of Mazda NA ($17.1 million), XL ($2.4 million) and AMT ($0.5
million). In addition, the Company increased its ownership position in World
Wide ($6.4 million) and Power ($2.4 million). Capital expenditures of $20.0
million consisted primarily of production equipment and tooling. Investments in
joint ventures included iPower ($5.0 million), Hitachi Remy Automotive GmbH
($2.0 million) and Continental ISAD ($1.6 million).

     Cash provided by financing activities of continuing operations consisted of
proceeds of $157.3 million, net of discount, fees and expenses, on the issuance
of the 11% senior subordinated debt on April 26, 2001, payment of $17.8 million
on the early retirement of the GM Subordinated Debenture issued in connection
with the separation from GM and a $64.5 million net reduction in the Senior
Credit Facility and other debt.

Five Months Ended December 31, 2000

     Cash used in operating activities of continuing operations during the five
months ended December 31, 2000 of $9.9 million reflects cash generated from
earnings adjusted for non-cash items offset by increased working capital
(primarily inventory) and cash payments relative to the manufacturing
realignment. The inventory increase was due primarily to higher average return
rates on cores and lower customer demand.

     Capital expenditures of $11.2 million during the transition period were for
production equipment, tooling and enterprise-wide systems.

     Cash provided by financing activities of continuing operations was
generated entirely from the Company's revolving line of credit.

Fiscal Year Ended July 31, 2000

     Cash provided by operating activities of continuing operations of $64.5
million in fiscal year 2000 reflects net income from continuing operations,
excluding non-cash items, of $88.1 million, reduced by an increase in working
capital of $14.7 million and cash restructuring payments of $8.9 million. The
increase in working capital includes a $14.3 million increase in inventory as a
result of delayed product pull from aftermarket customers. Cash restructuring
payments consisted primarily of employee termination benefits.

     Cash used in investing activities of continuing operations of $97.3 million
in fiscal year 2000 included the acquisitions of Knopf and Elmot, both of which
were funded with proceeds from the Senior Credit Facility. Capital expenditures,
consisting primarily of production equipment and tooling, reflected
implementation of enterprise-wide systems and projects to facilitate the global
manufacturing realignment. Investments in unconsolidated joint ventures in
included Continental ISAD ($0.8 million) and Sahney Paris Rhone Ltd. ($0.4
million).

     Cash provided by financing activities in fiscal year 2000 were generated
entirely from the Company's revolving line of credit. A $1.2 million cash
distribution was made to the minority shareholders of Delco Remy Korea.

     Cash outflows of discontinued operations of $5.7 million in fiscal year
2000 consisted primarily of the acquisition of Engine Master.

     Instruments governing the Company's indebtedness restrict the ability of
the Company's subsidiaries to make distributions to the Company.

     The Company believes that cash generated from operations and divestitures,
together with the amounts available under the Senior Credit Facility, will be
adequate to meet its debt service requirements, capital expenditures,
restructuring actions and working capital needs for at least the next twelve
months, although no assurance can be given in this regard. The Company's future
operating performance and ability to extend or refinance its indebtedness will
be dependent on future economic conditions and financial, business and other
factors that are beyond the Company's control.

                                       24

<PAGE>

Contingencies

     The Company is party to various legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business, including those relating to commercial transactions, product
liability, safety, health, taxes, environmental and other matters. For more
information, see Part I, Item 3 - Legal Proceedings, and Note 15 to the
Company's financial statements included under item 8.

Contractual Obligations and Contingent Liabilities and Commitments

     The Company's contractual obligations as of December 31, 2002 are provided
in the following table (dollars in millions):

<TABLE>
<CAPTION>
                                                                    Payments Due by Period
                                                      ----------------------------------------------------
                                                                 Less than      1 - 3     4 - 5    After 5
           Contractual Obligations                      Total      1 year       years     years     Years
                                                      ----------------------------------------------------
<S>                                                    <C>        <C>           <C>      <C>       <C>
           Long-Term Debt                              $  608      $   28/(1)/  $ 270    $  145     $  165
           Capital Lease Obligations                       19           3           4         3          9
           Operating Leases                                36           9          18         7          2
           Put/call Agreements                             11          11          --        --         --
           Employee Termination Benefits                   10/(2)/      5           5        --         --
                                                      ----------------------------------------------------
           Total Contractual Cash Obligations/(3)/     $  684      $   56       $ 297    $  155     $  176
                                                      ====================================================
</TABLE>

           (1)  Includes $17 million due relative to foreign revolving
                credit facilities which were renewed in January 2003 with a
                maturity date of January 2004.

           (2)  Excludes future payments relative to the closure of the
                Anderson, Indiana starter and alternator operations
                announced in January 2003 and the closure of certain Reed
                City, Michigan electrical remanufacturing facilities
                announced in March 2003, the costs of which actions have not
                yet been determined. See Note 21 to the Consolidated
                Financial Statements.

           (3)  Excludes payments of approximately $4 million made in March
                2003 relative to the acquisition of Hubei Delphi Automotive
                Generators Company, Ltd. See Note 21 to the Consolidated
                Financial Statements.

     In addition to the contractual obligations disclosed above, the Company
also has a variety of other contractual agreements related to the procurement of
materials and other commitments. With respect to these agreements, the Company
is not subject to any contracts which commit the Company to material
non-cancelable commitments. While certain of these contractual agreements are
long-term supply agreements, the Company is not committed under these agreements
to accept or pay for requirements which are not needed to meet production needs.
The Company has no material minimum purchase commitments or "take-or-pay" type
agreements or arrangements.

     With respect to capital expenditures, the Company expects capital spending
in 2003 to approximate $27.0 million.

     The Company may also be required to make additional payments in connection
with its acquisitions of Knopf, Delco Remy Mexico, Mazda NA and AMT. The Company
expects that the aggregate amount of these additional payments will be in the
range of $15 million to $28 million payable in 2003 to 2006.

Seasonality

     The Company's business is seasonal, as its major OEM customers historically
have one or two week shutdowns of operations during July. In response, the
Company typically has shut down its own operations for one week each July,
depending on backlog, scheduled maintenance and inventory buffers, as well as an
additional week during the December holidays. Consequently, the Company's
results in the third and fourth quarters in the years ended December 31, 2002
and 2001 and the five-month periods ended December 31, 2000 and 1999 and the
results in the second and fourth quarters in the fiscal year ended July 31, 2000
reflect the effects of these shutdowns. Refer to Note 19 to Consolidated
Financial Statements which pertains to quarterly (unaudited) financial
information.

                                       25

<PAGE>

Effects of Inflation

     The Company believes that the relatively moderate inflation over the last
few years has not had a significant impact on the Company's revenues or
profitability and that it has been able to offset the effects of inflation by
increasing prices or by realizing improvements in operating efficiency. The
Company has provisions in many of its contracts which provide for the pass
through of fluctuations in the price of certain raw materials, such as copper
and aluminum.

Foreign Sales

     Approximately 20.6% of the Company's net sales in 2002, 20.3% of the
Company's net sales in 2001, approximately 18.1% of the Company's net sales in
the five-month period ended December 31, 2000 and approximately 17.7% of the
Company's fiscal year 2000 net sales, respectively, were derived from sales made
to customers in foreign countries. Because of these foreign sales, the Company's
business is subject to the risks of doing business abroad, including currency
exchange rate fluctuations, limits on repatriation of funds, compliance with
foreign laws and other economic and political uncertainties.

Accounting Pronouncements

     For a discussion of pending accounting pronouncements that may affect the
Company, see Note 3 to the Company's financial statements included under Item 8.

Critical Accounting Policies

     The accounting policies of the Company, including those described below,
require management to make significant estimates and assumptions using
information available at the time the estimates are made. Actual amounts could
differ significantly from these estimates. See Note 3 to the Company's
Consolidated Financial Statements for a summary of the significant accounting
policies and methods used in the preparation of the consolidated financial
statements. The Company believes the following are some of the more critical
judgment areas in the application of accounting policies that currently affect
the consolidated financial condition and results of operations.

Inventory

     Inventories are valued at the lower of cost or market determined by the
first-in, first-out (FIFO) method. Estimates of lower of cost or market value of
inventory are determined at the operating unit level and are based upon the
inventory at that location taken as a whole. The cost of returned cores included
in inventory is based on the deposit value charged to customers on the sale of
aftermarket products.

     The Company evaluates inventories on a regular basis to identify inventory
on hand that may be obsolete or in excess of current and future projected market
demand. For inventory deemed to be obsolete, the company provides a reserve on
the full value of the inventory. Inventory that is in excess of current and
projected use is reduced by an allowance to a level that approximates the
estimate of future demand.

Goodwill And Other Intangible Assets

     The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets,"
effective January 1, 2002. Under SFAS No. 142, goodwill is no longer amortized;
however, it must be tested for impairment at least annually. Amortization
continues to be recorded for other intangible assets with definite lives. The
Company is subject to financial statement risk to the extent that goodwill and
indefinite-lived intangible assets become impaired.

Employee Benefit Plans

     The Company provides a range of benefits to its employees and retired
employees, including pensions and postretirement healthcare. The Company records
annual amounts relating to these plans based on calculations specified by U.S.
GAAP, which include various actuarial assumptions such as discount rates,
assumed rates of return, compensation increases, turnover rates and healthcare
cost trend rates. The expected return on plan assets is based on the Company's
expectation of the long-term average rate of return on assets in the pension
funds, which is reflective of the current and projected asset mix of the funds
and considers the historical returns earned on the funds. The Company reviews
its actuarial assumptions on an annual

                                       26

<PAGE>

basis and makes modifications to the assumptions based on current rates and
trends when appropriate. As required by U.S. GAAP, the effects of the
modifications are recorded currently or amortized over future periods. Based on
information provided by its independent actuaries and other relevant sources,
the Company believes that the assumptions used are reasonable.

Income Taxes

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company records a
valuation allowance that represents operating loss carryforwards for which
utilization is uncertain. Management judgment is required in determining the
Company's provision for income taxes, deferred tax assets and liabilities and
the valuation allowance recorded against the Company's net deferred tax assets.
The valuation allowance would need to be adjusted in the event future taxable
income is materially different than amounts estimated.

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the normal course of business, operations of the Company are exposed to
continuing fluctuations in foreign currency values, interest rates and commodity
prices that can affect the cost of operating, investing and financing.
Accordingly, the Company addresses a portion of these risks through a controlled
program of risk management that includes the use of derivative financial
instruments. The Company's objective is to reduce earnings and cash flow
volatility associated with these fluctuations. The Company's derivative
activities, all of which are for purposes other than trading, are initiated
within the guidelines of established policies and procedures designed to manage
market risk. The Company does not enter into any derivative transactions for
speculative purposes.

     The Company's primary interest rate risk exposure results from changes in
short-term U.S. dollar interest rates. In an effort to manage interest rate
exposures, the Company strives to achieve an acceptable balance between fixed
and variable rate debt positions. In order to limit the effect of interest rate
changes on earnings and cash flows, the Company maintains a significant
percentage of fixed rate debt (80% at December 31, 2002). As such, the Company
is exposed to U.S. changes in interest rates only on the Senior Credit Facility.
A 100 basis point increase in U.S. market interest rates on the amounts
outstanding at December 31, 2002 under the Senior Credit Facility would result
in an increase in the Company's annual interest expense of approximately $1.2
million.

     The Company's foreign currency risk exposure results from fluctuating
currency exchange rates, primarily the strengthening of the U.S. dollar against
the South Korean Won and certain European currencies. The Company faces
transactional currency exposures that arise when its foreign subsidiaries (or
the Company itself) enter into transactions, generally on an intercompany basis,
denominated in currencies other than their local currency. The Company also
faces currency exposure that arises from translating the results of its global
operations to the U.S. dollar at exchange rates that have fluctuated from the
beginning of the period. Exposure to variability in foreign currency exchange
rates is managed primarily through the use of natural hedges, whereby funding
obligations and assets are both denominated in the local currency. From time to
time, the Company enters into exchange agreements to manage its exposure arising
from fluctuating exchange rates related to specific transactions. A hypothetical
10 percent strengthening in the exchange rates over a one-year period would
decrease earnings by approximately $0.6 million. A hypothetical 10 percent
weakening in exchange rates would reduce the carrying value of the Company's net
investment in its foreign subsidiaries at December 31, 2002 by approximately
$3.9 million.

                                       27

<PAGE>

ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements of Delco Remy International, Inc.:                                Page
                                                                                       ----
<S>                                                                                    <C>
Report of Independent Auditors                                                          29

Consolidated Statements of Operations for the years ended December 31, 2002
and 2001, the five months ended December 31, 2000 and 1999 and year ended July
31, 2000                                                                                30

Consolidated Balance Sheets at December 31, 2002 and 2001                               31

Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 2002 and 2001, the five months ended December 31, 2000 and year
ended July 31, 2000                                                                     32

Consolidated Statements of Cash Flows for the years ended December 31, 2002 and
2001, the five months ended December 31, 2000 and year ended July 31, 2000              33

Notes to Consolidated Financial Statements                                              34
</TABLE>

                                       28

<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and
Board of Directors of
Delco Remy International, Inc.

     We have audited the accompanying consolidated balance sheets of Delco Remy
International, Inc. as of December 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years ended December 31, 2002 and 2001, the five months ended
December 31, 2000 and the year ended July 31, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about 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. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Delco Remy International, Inc. at December 31, 2002 and 2001, and the
consolidated results of its operations and cash flows for the years ended
December 31, 2002 and 2001, the five months ended December 31, 2000 and the year
ended July 31, 2000, in conformity with accounting principles generally accepted
in the United States.

     As discussed in Note 4 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" in 2002.

                                                           /S/ ERNST & YOUNG LLP

Indianapolis, Indiana
March 4, 2003, except for Note 21, as to
which the date is March 19, 2003

                                       29

<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
                                 (in thousands)

<TABLE>
<CAPTION>
                                                              Year Ended              Five Months Ended
                                                              December 31                December 31          Year Ended
                                                     --------------------------   -------------------------     July 31
                                                         2002           2001          2000         1999          2000
                                                     -------------------------------------------------------------------
                                                                                                (Unaudited)
<S>                                                  <C>             <C>           <C>          <C>          <C>
Net sales                                            $ 1,069,352    $ 1,007,152    $  422,200   $  421,203   $ 1,032,854
Cost of goods sold                                       890,261        822,227       336,645      336,792       813,410
Special charges - cost of goods sold                          --         16,236            --           --            --
                                                     -------------------------------------------------------------------
Gross profit                                             179,091        168,689        85,555       84,411       219,444
Selling, general and administrative expenses             101,200         99,166        42,551       42,666       102,064
Special charges - selling, general and
 administrative expenses                                      --         16,206            --           --            --
Amortization of goodwill and intangibles                   1,302          6,755         2,498        2,392         5,817
Restructuring charges                                         --         33,425            --           --        31,366
                                                     -------------------------------------------------------------------
Operating income                                          76,589         13,137        40,506       39,353        80,197
Interest expense, net                                    (58,914)       (56,557)      (20,842)     (18,764)      (46,586)
Non-recurring merger and tender offer expenses                --         (4,194)       (1,124)          --            --
Other non-operating income (expense)                      (1,832)         1,849         1,501         (147)          129
                                                     -------------------------------------------------------------------
Income (loss) from continuing operations before
 income taxes (benefit), minority interest in
 income of subsidiaries, loss from unconsolidated
 joint ventures, extraordinary items and cumulative
 effect of change in accounting principle                 15,843        (45,765)       20,041       20,442        33,740
Income tax expense (benefit)                               7,189        (10,083)        6,460        7,673        12,487
Minority interest in income of subsidiaries               (4,245)        (9,254)       (2,778)      (2,841)       (6,742)
Loss from unconsolidated joint ventures                   (3,830)        (2,925)         (467)         (13)         (352)
                                                     -------------------------------------------------------------------
Net income (loss) from continuing operations
 before extraordinary items and cumulative effect
 of change in accounting principle                           579        (47,861)       10,336        9,915        14,159
Discontinued operations:
   Income (loss) from discontinued operations
    (including estimated loss on disposal
    of $28,248 in 2002)                                  (57,831)       (32,341)       (1,002)       2,263        (2,769)
   Income tax expense (benefit)                               --         (6,857)         (365)         932        (1,028)
                                                     -------------------------------------------------------------------
   Net income (loss) from discontinued operations        (57,831)       (25,484)         (637)       1,331        (1,741)
Extraordinary items:
   Gain (loss) on early extinguishment of debt,
    net of income tax                                     (1,108)           698            --           --            --
Cumulative effect of change in accounting
 principle, net                                          (74,176)            --            --           --            --
                                                     -------------------------------------------------------------------
Net income (loss)                                       (132,536)       (72,647)        9,699       11,246        12,418
Redeemable preferred stock dividends                      29,375         20,971            --           --            --
                                                     -------------------------------------------------------------------
Income (loss) attributable to common stockholders    $  (161,911)   $   (93,618)   $    9,699   $   11,246   $    12,418
                                                     ===================================================================
</TABLE>

                             See Accompanying Notes

                                       30

<PAGE>

                           CONSOLIDATED BALANCE SHEETS

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
               (in thousands, except for share and per share data)

<TABLE>
<CAPTION>
                                                                             December 31
                                                                      -------------------------
                                                                           2002          2001
                                                                      -------------------------
<S>                                                                   <C>             <C>
Assets:
Current assets:
   Cash and cash equivalents                                            $   12,896    $  23,868
   Trade accounts receivable (less allowance for doubtful
    accounts of $5,140 and $2,972)                                         149,610      155,404
   Other receivables                                                        12,931        8,944
   Inventories                                                             289,895      283,859
   Deferred income taxes                                                    14,423       21,175
   Assets of discontinued operations                                         3,561       41,434
   Other current assets                                                     15,435       12,895
                                                                      -------------------------
Total current assets                                                       498,751      547,579
Property and equipment                                                     311,957      294,582
Less accumulated depreciation                                             (142,230)    (118,727)
                                                                      -------------------------
Property and equipment, net                                                169,727      175,855
Deferred financing costs, net                                               17,268       12,640
Goodwill, net                                                              122,933      180,188
Investments in joint ventures                                               11,891       11,144
Deferred income taxes                                                       12,248       10,476
Other assets                                                                16,642        9,349
                                                                      -------------------------
Total assets                                                            $  849,460    $ 947,231
                                                                      =========================

Liabilities and stockholders' deficit:
Current liabilities:
   Accounts payable                                                     $  143,402    $ 128,781
   Accrued interest                                                          9,743       10,100
   Accrued restructuring                                                    10,815       27,944
   Liabilities of discontinued operations                                    6,533        8,605
   Other liabilities and accrued expenses                                   66,947       56,562
   Current portion of long-term debt                                        30,190        6,771
                                                                      -------------------------
Total current liabilities                                                  267,630      238,763
Long-term debt                                                             596,382      593,178
Post-retirement benefits other than pensions                                23,553       25,812
Accrued pension benefits                                                    14,427       10,216
Other non-current liabilities                                               12,282        6,655
Commitments and contingencies
Minority interest in subsidiaries                                           17,850       30,107
Redeemable preferred stock                                                 274,074      244,699
Stockholders' deficit:
   Common stock:
     Class A Shares (par value $.001; authorized 1,000;                         --           --
       issued 1,000 in 2002)
     Class B Shares (par value $.001; authorized 6,000,000;                      3            3
       issued 2,485,337.49 in 2002)
     Class C Shares (par value $.001; authorized 6,000,000;                     --           --
       issued 16,687 in 2002)
   Retained deficit                                                       (340,673)    (178,762)
   Accumulated other comprehensive loss                                    (16,068)     (23,440)
                                                                      -------------------------
Total stockholders' deficit                                               (356,738)    (202,199)
                                                                      -------------------------
Total liabilities and stockholders' deficit                             $  849,460    $ 947,231
                                                                      =========================
</TABLE>

                             See Accompanying Notes

                                       31

<PAGE>


            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' Equity (Deficit)

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                              Accumulated
                                            Class A   Class B  Class C             Retained     Other       Stock
                                            Common    Common    Common   Paid-In    Earnings Comprehensive Purchase
                                             Stock     Stock    Stock    Capital   (Deficit)     Loss        Plan    Total
                                          ----------------------------------------------------------------------------------
<S>                                       <C>       <C>      <C>       <C>        <C>        <C>           <C>     <C>
Balance at July 31, 1999                   $  182   $   63    $   --  $ 104,176   $  12,152  $   (6,516)   $ (537) $ 109,520
Other                                          --       --        --         --          --          --       209        209
Net income                                     --       --        --         --      12,418          --        --     12,418
Currency translation adjustment                --       --        --         --          --      (4,321)       --     (4,321)
                                                                                                                   ---------
Comprehensive income                                                                                                   8,097
                                          ----------------------------------------------------------------------------------
Balance at July 31, 2000                      182       63        --    104,176      24,570     (10,837)     (328)   117,826
Cumulative effect of accounting change
 for derivative instruments                    --       --        --         --          --         241        --        241
Other                                          --       --        --         --          --          --        (8)        (8)
Net income                                     --       --        --         --       9,699          --        --      9,699
Currency translation adjustment                --       --        --         --          --      (1,747)       --     (1,747)
Unrealized losses on derivative instruments    --       --        --         --          --      (4,893)       --     (4,893)
                                                                                                                   ---------
Comprehensive income                                                                                                   3,059
                                           ---------------------------------------------------------------------------------
Balance at December 31, 2000                  182       63        --    104,176      34,269     (17,236)     (336)   121,118
Recapitalization                             (182)     (60)       --   (103,953)   (105,164)         --       336   (209,023)
Issuance of preferred stock
 from warrant exercise                         --       --        --         --     (14,472)         --        --    (14,472)
Dividends on preferred stock                   --       --        --       (223)    (20,748)         --        --    (20,971)
Net loss                                       --       --        --         --     (72,647)         --        --    (72,647)
Currency translation adjustment                --       --        --         --          --      (5,624)       --     (5,624)
Unrealized gains on derivative instruments     --       --        --         --          --       2,155        --      2,155
Minimum pension liability                      --       --        --         --          --      (2,735)       --     (2,735)
                                                                                                                   ---------
Comprehensive loss                                                                                                   (78,851)
                                           ---------------------------------------------------------------------------------
Balance at December 31, 2001                   --        3        --         --    (178,762)    (23,440)       --   (202,199)
Dividends on preferred stock                   --       --        --         --     (29,375)         --        --    (29,375)
Net loss                                       --       --        --         --    (132,536)         --        --   (132,536)
Currency translation adjustment                --       --        --         --          --       7,739        --      7,739
Unrealized gains on derivative instruments     --       --        --         --          --       2,832        --      2,832
Minimum pension liability                      --       --        --         --          --      (3,199)       --     (3,199)
                                                                                                                   ---------
Comprehensive loss                                                                                                  (125,164)
                                           ---------------------------------------------------------------------------------
Balance at December 31, 2002               $   --   $    3    $   --  $      --   $(340,673) $  (16,068)   $   --  $(356,738)
                                           =================================================================================
</TABLE>

                             See Accompanying Notes

                                       32

<PAGE>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                        Year Ended
                                                                        December 31         Five Months Ended  Year Ended
                                                              ---------------------------      December 31       July 31
                                                                  2002             2001           2000            2000
                                                              -----------------------------------------------------------
<S>                                                           <C>               <C>          <C>                <C>
Operating Activities:
Net income (loss)                                              $ (132,536)      $ (72,647)       $  9,699       $ 12,418
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities:
   Cumulative effect of change in accounting principle             74,176              --              --             --
   Loss from discontinued operations                               29,583          25,484             637          1,741
   Loss on disposal of discontinued operations                     28,248              --              --             --
   Extraordinary items                                              1,108            (698)             --             --
   Depreciation                                                    29,287          26,481          10,169         24,998
   Amortization                                                     1,302           6,755           2,498          5,817
   Minority interest in income of subsidiaries                      4,245           9,254           2,778          6,742
   Loss from unconsolidated joint ventures                          3,830           2,925             467            352
   Deferred income taxes                                            5,555         (26,700)          1,652          3,775
   Post-retirement benefits other than pensions                    (2,259)          3,018           1,155            589
   Accrued pension benefits                                         4,211           5,792           3,138         (1,433)
   Non-cash interest expense                                        4,093           1,802             740          1,763
   Changes in operating assets and liabilities,
    net of acquisitions and non-cash special charges:
      Accounts receivable                                           5,794         (15,226)         (1,103)         2,383
      Inventories                                                  (5,548)         (3,823)        (26,588)       (14,250)
      Accounts payable                                             14,621         (10,956)         13,822         11,651
      Other current assets and liabilities                          3,523          (1,146)         (9,189)       (14,460)
      Restructuring charges                                           --           33,425              --          31,366
      Cash payments for restructuring charges                     (16,888)         (6,457)        (15,133)        (8,900)
      Non-cash special charges                                        --           32,442              --             --
      Other non-current assets and liabilities, net                (5,834)          6,080          (4,678)           (74)
                                                             ----------------------------------------------------------
Net cash provided by (used in) operating
 activities of continuing operations                               46,511          15,805          (9,936)        64,478
Investing Activities:
Acquisitions, net of cash acquired                                (17,258)        (28,888)             --        (62,161)
Purchases of property and equipment                               (20,427)        (20,011)        (11,214)       (33,944)
Investments in joint ventures                                      (3,000)         (8,662)         (1,892)        (1,179)
                                                              ----------------------------------------------------------
Net cash used in investing activities of continuing               (40,685)        (57,561)        (13,106)       (97,284)
 operations
Financing Activities:
Proceeds from issuance of long-term debt                          144,769         157,291              --             --
Retirement of long-term debt                                     (144,769)        (17,790)             --             --
Net borrowings (repayments) under revolving
 line of credit and other                                          15,330         (64,478)         35,542         40,268
Deferred financing costs                                           (7,816)         (5,561)             --             --
Merger and tender offer costs                                          --          (5,318)             --             --
Distributions to minority interests                                (1,800)           (762)           (322)        (1,200)
                                                               ---------------------------------------------------------
Net cash provided by financing activities
 of continuing operations                                           5,714          63,382          35,220         39,068
Effect of exchange rate changes on cash                             2,159            (715)         (1,151)          (637)
Cash flows of discontinued operations                             (24,671)        (19,389)         (3,290)        (5,718)
                                                               ---------------------------------------------------------
Net increase (decrease) in cash and cash equivalents              (10,972)          1,522           7,737            (93)
Cash and cash equivalents at beginning of year                     23,868          22,346          14,609         14,702
                                                               ---------------------------------------------------------
Cash and cash equivalents at end of year                       $   12,896       $  23,868        $ 22,346       $ 14,609
                                                               =========================================================
</TABLE>

                             See Accompanying Notes

                                     33

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
                                December 31, 2002
                             (dollars in thousands)

1. ORGANIZATION AND ACQUISITIONS

Delco Remy America Acquisition

     On July 31, 1994, Delco Remy International, Inc. (the "Company" or "DRI")
through a wholly-owned subsidiary, Delco Remy America, Inc. ("DRA"), purchased
substantially all of the assets, other than facilities, and assumed certain
liabilities of specific business activities of the Delco Remy Division of
General Motors Corporation (the "GM Acquisition"). The specific business
activities purchased are engaged in the design, manufacture, remanufacture and
sale of heavy duty starter motors and generators, automotive starter motors, and
related components.

     The GM Acquisition was recorded based on the best estimates available,
however, certain purchase price adjustments remained unresolved between General
Motors Corporation ("GM") and the Company. In 2001, the Company recorded a
charge of $16,081 to operations under the caption "special charges - selling,
general and administrative expenses" related to the unresolved issues (see Note
5).

     GM is entitled to receive an additional contingent purchase payment which
will be paid beginning in 2004 and will be based upon a percentage of average
earnings of the Company in the three year period ending December 31, 2003 in
excess of certain imputed earnings. Since the additional contingent purchase
price, if any, is based upon future operations of the Company which cannot be
determined at this time, no provision for such payment has been made in the
accompanying consolidated financial statements. The additional contingent
purchase price, if any, will increase the goodwill recorded for the GM
Acquisition.

     Concurrent with the GM Acquisition, the Company entered into certain supply
agreements with GM whereby the Company would be the sole-source supplier to GM
for component parts manufactured by the Company at the date of the GM
Acquisition. The supply agreement for automotive starter motors had an initial
term of ten years, while the supply agreement for heavy duty starter motors and
generators had an initial term of six years. In fiscal year 1999, the Company
and GM amended the agreement for the Company's price of automotive products and
extended the agreement term to August 31, 2008. In April 2002, price and product
offering was adjusted in accordance with the competitive (as to price,
technology and design) clause of the original agreement. The Supply Agreement
for heavy duty products terminated on July 31, 2000. Sales to GM were not
adversely affected and the Company now has the ability to provide an expanded
heavy duty product offering to GM and other customers. GM's obligations to
distribute the Company's automotive aftermarket products terminates on July 31,
2009.

Calendar Year 2002 Acquisitions

     During the year ended December 31, 2002, the Company made payments totaling
$5,398 under contractual put agreements to purchase additional shares from the
minority shareholders of World Wide Automotive, Inc. ("World Wide"), which was
acquired in 1997. These payments increased the Company's ownership percentage of
World Wide from 88.2% to 94.0%.

     Also during 2002, the Company made payments totaling $5,625 under
contractual put agreements to purchase additional shares from the minority
shareholders of Power Investments, Inc. ("Power"), which was acquired in 1996.
These payments increased the Company's ownership percentage of Power from 85.8%
to 93.4%.

     The Company also made cash payments totaling $5,485 and issued notes in the
amount of $9,918 ($5,196 of which is payable in 2003 and $4,722 of which is
payable in 2004) in 2002, to purchase additional shares from the minority
shareholders of Delco Remy Korea, which was acquired in 1999. This transaction
increased the Company's ownership percentage in Delco Remy Korea from 81.0% to
100%.

     At December 31, 2002, the Company was in negotiations with Delphi
Corporation to purchase certain portions of its generator business. In the
fourth quarter of 2002, the Company completed the acquisition of intellectual
property rights for the light duty alternator product line and certain other
assets for production of automotive alternators. Additional agreements are
expected to be completed in 2003.

                                       34

<PAGE>

Calendar Year 2001 Acquisitions and Investments

     In July 2001, the Company and Hitachi Ltd. formed Hitachi Remy Automotive
GmbH to develop, manufacture and market automotive starting motors and
alternators in European and North American markets. The Company's ownership
position in this business is 49%. This investment is accounted for under the
equity method.

     In June 2001, the Company, through a wholly-owned subsidiary, purchased the
North American remanufacturing business of Mazda North American Operations
("Mazda NA"). The purchase price of $17,116, including expenses and excluding
future contingent payments, was funded through proceeds from the Company's
Senior Credit Facility. The acquisition was accounted for as a purchase with
resulting goodwill of $17,116. Amortization of goodwill in 2001 was based on an
amortization period of 20 years. The business, located in Jacksonville, Florida,
is responsible for the remanufacturing of Mazda automatic transmissions,
transaxles and rotary engines for Mazda's service requirements in North America.
The Company will continue to remanufacture these components to support Mazda's
service and replacement parts needs in North America.

     In May 2001, the Company acquired 100% of the capital stock of Auto Matic
Transmission International A/S ("AMT") for approximately $500. AMT, based in
Soborg, Denmark, remanufactures automatic transmissions for passenger cars and
commercial vehicles.

     In February 2001, the Company acquired the assets of XL Component
Distribution Limited ("XL") for approximately $2,416. Goodwill of $2,416 was
recorded in connection with the acquisition. XL, headquartered in Droitwich,
Worcestershire, England, is involved in the remanufacturing, packaging and
distribution of steering racks, brake calipers, ignition distributors, ignition
leads, transmission components and rotating electrics.

     Payments totaling $6,434 were made in 2001 to acquire additional shares
from the minority shareholders of World Wide, which was acquired in 1997. These
payments increased the Company's ownership percentage of World Wide from 82.5%
to 88.2%.

     Payments totaling $2,422 were made in 2001 to acquire additional shares
from the minority shareholders of Power, which was acquired in 1996. These
payments increased the Company's ownership percentage of Power from 82.5% to
85.8%.

Five Month Transition Period Investment

     In December 2000, the Company and Aero Vironment, Inc. formed iPower
Technologies, L.L.C. ("iPower") to pursue the development and commercialization
of high-technology products in the distributed generation and hybrid electric
vehicle markets. The Company owned 50% of iPower on December 31, 2001 and 42.8%
on December 31, 2002. This investment is accounted for under the equity method.

Fiscal Year 2000 Acquisitions and Investments

     In August 1999, the Company, through a wholly-owned subsidiary, purchased
the assets of Engine Master, a remanufacturer of gasoline engines located in
Dallas, Texas, for $5,844 in cash. The acquisition was treated as a purchase for
accounting purposes and resulted in goodwill of $1,076. In the second quarter of
2002, the Company completed plans to exit the retail aftermarket gas engine
business (See Note 3).

     In March 2000, the Company, through a wholly-owned subsidiary, purchased
100% of the capital shares of M&M Knopf Auto Parts, Inc. ("Knopf") from certain
shareholders. The purchase price of $61,322, net of cash acquired and including
the payoff of certain debt of Knopf, was funded through proceeds from the
Company's Senior Credit Facility and is subject to certain adjustments. The
acquisition was accounted for as a purchase. Resulting goodwill was
approximately $37,000. The purchase price is subject to an additional contingent
payment of cash and/or common stock of the Company in 2004, subject to the
achievement by Knopf of certain earnings goals. The amount of this payment
cannot currently be determined. This additional contingent purchase price, if
any, will increase the goodwill recorded for the acquisition.

                                       35

<PAGE>

     In April 2000, the Company, through a wholly-owned subsidiary, purchased
100% of the capital shares of Elmot-DR Sp z.o.o, a Polish manufacturer of
starters and alternators for the OEM and aftermarket in Europe, for $839 in
cash, net of cash acquired. The acquisition was treated as a purchase for
accounting purposes with no resulting goodwill.

     In January 2000, the Company and Continental AG formed Continental ISAD
Electric Systems GmbH & Co. ("Continental ISAD") to develop and produce an
integrated starter and alternator product. The Company's ownership position in
this business is 49%. This investment is accounted for under the equity method.
This venture was terminated in 2002.

2.   Discontinued Operations

     In the second quarter of 2002, the Company concluded that its retail
aftermarket gas engine business does not fit with its strategic objectives and
completed plans to exit the business. The wind-down of operations will be
completed in 2003. Results for this business are reported as discontinued
operations in the Company's consolidated financial statements. All periods
presented have been reclassified accordingly. In connection with the
discontinuance of the business, a charge of $28,248 was recorded in 2002 to
write down the relevant assets to their estimated realizable value. An
additional charge of $2,824 was recorded for the estimated cost of employee
termination benefits and closure of the facilities. Estimated future taxable
income relative to discontinued operations, both in the United States and
Canada, and reversing taxable temporary differences, are not sufficient to
absorb the losses recorded. Therefore, a valuation allowance equal to the 2002
income tax effect of the losses is included with the charge. Assets of $3.6
million at December 31, 2002 consisted primarily of inventories. Liabilities of
$6.5 million at December 31, 2002 consisted primarily of accounts payable and
accrued restructuring charges. Net sales, interest expense and loss before
income tax from the discontinued operation are as follows:

<TABLE>
<CAPTION>
                                             Year Ended          Five Months Ended    Year Ended
                                             December 31            December 31         July 31
                                       ---------------------------------------------------------
                                          2002        2001        2000        1999        2000
                                       ---------------------------------------------------------
<S>                                    <C>        <C>         <C>         <C>          <C>
          Net sales                    $  14,428  $  49,563   $ 20,536    $ 25,604     $ 58,150
          Interest expense                 6,517      4,320        948         887        2,180
          Income (loss) before tax       (57,831)   (32,341)    (1,002)      2,263       (2,769)
</TABLE>

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

     The consolidated financial statements include the accounts of DRI and its
subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation.

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

     The Company changed its fiscal year end to December 31, effective August 1,
2000. Prior to August 1, 2000, the fiscal year ended on July 31. Accordingly,
the Company's audited financial statements include statements of operations,
stockholders' equity (deficit) and cash flows for the five-month transition
period ended December 31, 2000.

Nature of Operations

     The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and related components and provides core
exchange services for automobiles and light trucks, medium- and heavy-duty
trucks and other heavy-duty and industrial applications. Products include
starter motors, alternators, engines, transmissions, torque converters, and fuel
systems. The Company serves the aftermarket and original equipment manufacturer
market, principally in North America, as well as Europe, Latin America and Asia
Pacific.

                                       36

<PAGE>

Cash and Cash Equivalents

     Cash and cash equivalents includes all cash balances and highly liquid
investments held primarily in repurchase agreements collateralized by U.S.
Government securities with a maturity of ninety days or less when purchased. The
carrying amount of cash equivalents approximates fair value.

Concentrations of Credit Risk and Other Risks

     Substantially all of the Company's accounts receivable are due from
customers in the original equipment and aftermarket automotive industries, both
in the U.S. and internationally. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. The Company maintains allowances for doubtful customer accounts for
estimated losses resulting from the inability of its customers to make required
payments. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.

     The Company conducts a significant portion of its business with GM. See
Note 13.

Derivative Financial Instruments

     Effective August 1, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that all derivatives be
recognized on the balance sheet at fair value. Changes in fair values of
derivatives are accounted for based upon their intended use and designation.
Derivatives used for hedging purposes must be designated as, and effective as, a
hedge of the identified risk exposure at the designation of the contract.
Accordingly, changes in the market value of the derivative contract must be
highly correlated with changes in the market value of the underlying hedged item
at inception of the hedge and over the life of the hedge contract. Any
derivative instrument terminated, designated but no longer effective as a hedge
or initially not effective as a hedge would be recorded at market value and the
related gains and losses would be recognized in earnings. Derivatives not
designated as hedges are adjusted to fair value through the consolidated
statement of operations.

     Gains and losses from hedges of anticipated transactions are classified in
the statement of operations consistent with the accounting treatment of the
items being hedged.

     In the normal course of business, operations of the Company are exposed to
continuing fluctuations in foreign currency values, interest rates and commodity
prices that can affect the cost of operating, investing and financing.
Accordingly, the Company addresses a portion of these risks through a controlled
program of risk management that includes the use of derivative financial
instruments. The Company's objective is to reduce earnings and cash flow
volatility associated with these fluctuations. The Company's derivative
activities, all of which are for purposes other than trading, are initiated
within the guidelines of established policies and procedures designed to manage
market risk. Management routinely reviews the effectiveness of the use of
derivative instruments. The Company does not enter into any derivative
transactions for speculative purposes. From time to time, the Company enters
into foreign currency exchange agreements to manage its exposure arising from
fluctuating exchange rates related to specific transactions.

                                       37

<PAGE>

     In order to hedge anticipated U.S. dollar-denominated intercompany sales of
inventory by its South Korean subsidiary to a U.S. subsidiary against
fluctuations between the South Korean Won and U.S. dollar, the Company entered
into a series of non-deliverable currency forward contracts. The critical terms
of the hedges are the same as the underlying forecasted transactions, and the
hedges are considered highly effective to offset the change in the fair value of
the cash flows from the hedged transactions. These contracts normally mature
within a year. At maturity, each contract is settled at the difference between
fair value and contract value. These derivative contracts were designated as
cash flow hedges and, accordingly, changes in fair value were charged to other
comprehensive income (loss) (see Note 12). Gains and losses arising from the use
of the non-deliverable forwards are recorded in the consolidated statement of
operations when gains and losses arising from the underlying hedged transactions
affect consolidated earnings. In November 2000, the Company entered into an
interest rate swap to hedge the exposure on a portion of its variable rate debt.
The swap converted the libor-based rate into a fixed rate of 6.51% on debt of
$100,000 for a period of two years. This swap was designated as a cash flow
hedge and changes in fair value were charged to other comprehensive income
(loss) (see Note 12). Realized gains and losses were charged to earnings as
interest expense in the periods in which earnings were impacted by the
variability of the cash flows of the interest paid. The interest rate swap hedge
expired in November 2002. The notional amounts of the Company's foreign
exchange contracts are summarized as follows:


                                                       December 31
                                    --------------------------------------------
                                              2002                   2001
                                    --------------------------------------------
                                      Notional      Fair     Notional      Fair
                                       Amount      Value     Amount       Value
                                    --------------------------------------------
         Forwards                     $    111   $    127   $  2,716    $  2,750
         Non-deliverable forwards       10,400     11,411         --          --

Inventories

     Inventories are carried at lower of cost or market determined on the
first-in, first-out (FIFO) method. The cost of returned cores included in
inventory is principally based on the deposit value charged to customers on the
sale of aftermarket products. Raw materials also include supplies and repair
parts which consist of materials consumed in the manufacturing process but not
directly incorporated into the finished products. Inventories consist of the
following:

                                                December 31
                                       ---------------------------
                                          2002             2001
                                       ---------------------------
               Raw materials            $ 153,732       $  158,015
               Work-in-process             43,906           49,668
               Finished goods              92,257           76,176
                                       ---------------------------
                                        $ 289,895       $  283,859
                                       ===========================

     The Company writes down its inventory for estimated obsolescence or
unmarketable inventory by the difference between the cost of the inventory and
the estimated market value of the inventory based upon assumptions concerning
market conditions and future demand. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.

Warranty

     The Company provides an allowance for the estimated future cost of product
warranties, based on management's estimate of product failure rates and customer
eligibility. If these factors differ from management's estimates, revisions to
the estimated warranty liability may be required.

     Accrued warranty expense was $17,027 at December 31, 2002 and $16,403 at
December 31, 2001.

Property and Equipment

     Property and equipment are stated at cost and include certain expenditures
for leased facilities. Depreciation is calculated primarily using the
straight-line method over the estimated useful lives of the related assets,
including leased facilities (15 to 40 years for buildings and 3 to 15 years for
machinery and equipment).

                                       38

<PAGE>

Goodwill and Long-Lived Assets

     Goodwill represents the excess of purchase price over fair value of the net
assets acquired and was amortized by the straight-line method over 15 to 35
years through 2001. In accordance with Statement of Financial Accounting
Standards Goodwill and Other Intangible Assets, SFAS 142, which was adopted by
the Company effective January 1, 2002, goodwill and other intangible assets are
not amortized, but tested for impairment at least annually. For more information
on goodwill, see Note 4, Goodwill and Other Intangible Assets - Adoption of SFAS
142.

Investments in Joint Ventures

     Investments in companies representing an ownership interest of 20% to 50%
are accounted for by the equity method. At December 31, 2002, the Company's
ownership interest and carrying value of these investments were: Sahney Paris
Rhone Ltd. (47.5%, $4.8 million); iPower (42.8%, $5.1 million); and Hitachi Remy
Automotive GmbH (49%, $1.6 million).

Income Taxes

     The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires deferred tax assets and liabilities
be recognized using enacted tax rates for the effect of temporary differences
between the book and tax bases of recorded assets and liabilities. SFAS No. 109
also requires deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred tax asset will not
be realized.

     The Company evaluates quarterly the realizability of its deferred tax
assets by assessing its valuation allowance and by adjusting the amount of such
allowance, if necessary. The factors used to assess the likelihood of
realization are the Company's forecast of future taxable income and available
tax planning strategies that could be implemented to support the realization of
certain deferred tax assets.

     Failure to achieve forecasted taxable income may affect the ultimate
realization of certain deferred tax assets. Factors that may affect the
Company's ability to achieve sufficient forecasted taxable income include, but
are not limited to, general economic conditions, increased competition, or
delays in product availability.

Pension and Post-Retirement Plans

     The Company sponsors various defined benefit pension and post-retirement
plans which produce significant costs developed from actuarial valuations.
Inherent in these valuations are key assumptions regarding discount rates,
expected return on plan assets, rates of compensation increases, and the rates
of health care benefit increases. The Company is required to consider current
market conditions in determining these assumptions. If future trends in these
assumptions prove to differ from management's assumptions, revisions to the plan
assets, benefit obligations and components of expense may be required.

Recognition of Revenue

     Substantially all of the Company's revenue is recognized at the time
product is shipped to customers. The Company's remanufacturing operations obtain
used diesel and gasoline engines, fuel systems, transmissions, starter motors
and generators, commonly known as cores, from its customers as trade-ins. Net
sales and cost of goods sold were reduced by $250,420, $193,247, $81,649, and
$182,003 for the years 2002, 2001, the five months ended December 31, 2000 and
fiscal year 2000, respectively, to reflect the cost of cores for remanufactured
product shipped.

Foreign Currency Translation

     Financial statements of foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and at the average exchange rate for each year for revenue and
expenses. Translation adjustments are recorded as a separate component of
stockholders' equity and reflected in comprehensive income (loss).

                                       39

<PAGE>

Earnings Per Share

     As a result of the recapitalization of the Company (see Note 10), the
Company's publicly traded common stock was delisted. Consequently, the Company
has not presented earnings per share in its consolidated financial statements as
it believes its presentation is not meaningful to investors.

Fair Value of Financial Instruments

     The Company's financial instruments generally consist of cash and cash
equivalents, trade and other receivables, accounts payable and long-term debt.
The fair value of the Company's fixed rate debt was estimated using a discounted
cash flow analysis based upon the Company's current incremental borrowing rates.
With the exception of the Senior Notes and the Senior Subordinated Notes, the
carrying amounts of these financial instruments approximated their fair value at
December 31, 2002 and 2001.

                                                                December 31
                                                   Face    ---------------------
                                                   Value      2002        2001
                                               ---------------------------------
          Senior Notes                          $ 145,000   $116,363   $ 141,042
          10 5/8% Senior Subordinated Notes       140,000     71,225     144,452
          11% Senior Subordinated Notes           165,000     83,531     169,950

Use of Estimates

     Preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities at the date of the
consolidated financial statements, and the reported amounts of revenue and
expense during the year. Actual results could differ from those estimates.

Implementation of New Financial Accounting Pronouncements

     In 2001, the Financial Accounting Standards Board (FASB) issued SFAS 142,
Goodwill and Other Intangible Assets. SFAS 142 applies to all acquired
intangible assets. It requires that goodwill and other identifiable intangible
assets with an indefinite useful life not be amortized but instead be tested for
impairment at least annually. Identifiable intangible assets are amortized when
their useful life is determined to no longer be indefinite. The Company adopted
this statement on January 1, 2002. The results of adoption are listed in Note 4.
Goodwill and Other Intangible Assets - Adoption of SFAS No. 142 below.

     In 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. SFAS 143 requires companies to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred, which
is adjusted to its present value each subsequent period. In addition, companies
must capitalize a corresponding amount by increasing the carrying amount of the
related long-lived asset, which is depreciated over the useful life of the
related long-lived asset. The Company will adopt SFAS 143 effective as of
January 1, 2003, and does not expect that this statement will have a material
impact on our consolidated financial position or results of operations.

     In 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 provides additional restrictive criteria
that are required to be met to classify an asset as held-for-sale. This
statement also requires expected future operating losses from discontinued
operations to be recorded in the period in which the losses are incurred (rather
than as of the date management commits to a formal plan to dispose of a segment
as previously required). In addition, more dispositions will qualify for
discontinued operations treatment in the income statement. The Company adopted
SFAS 144 effective January 1, 2002. The presentation of the Company's retail
aftermarket gas engine business as a discontinued operation is in accordance
with the provision of SFAS 144.

     In 2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145
eliminates the classification of debt extinguishments as extraordinary items.
The provisions of SFAS No. 145 related to the rescission of FASB Statements No.
44 and 64 and amendment of SFAS No. 13 and Technical Corrections were adopted by
the Company in the second quarter of 2002. Adoption of these provisions did

                                       40

<PAGE>

not have a material effect on the Company's results of operations, financial
position or cash flows. The provisions of SFAS No. 145 related to rescission of
SFAS No. 4 are required to be adopted by the first quarter of 2003. The Company
will adopt this statement effective January 1, 2003, and the extraordinary items
resulting from debt extinguishments in 2002 and 2001 will be reclassified as
interest expense. Accordingly, interest expense, net, will increase $1.8 million
and income from continuing operations will decrease $1.1 million in 2002 and
interest expense, net, will decrease $1.1 million and the loss from continuing
operations will decrease $0.7 million in 2001.

     In 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Severance pay under SFAS 146, in many cases, would be recognized over
the remaining service period rather than at the time the plan is communicated.
The provisions of SFAS 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company will adopt SFAS 146 for any
actions initiated after January 1, 2003, and any future exit costs or disposal
activities will be subject to this statement.

     In 2002, the FASB issued FASB Interpretation (FIN) 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires an issuer of a guarantee
to recognize an initial liability for the fair value of the obligations covered
by the guarantee. FIN 45 also addresses the disclosures required by a guarantor
in interim and annual financial statements regarding obligations under
guarantees. The Company does not have any guarantees under FIN 45; therefore the
adoption of this interpretation will not have an impact on the Company's
consolidated financial position or results of operations.

     In 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. FIN 46 defines a variable interest entity (VIE) as a corporation,
partnership, trust, or any other legal structure that does not have equity
investors with a controlling financial interest or has equity investors that do
not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires consolidation of a VIE by the primary beneficiary of
the assets, liabilities, and results of activities effective in 2003. FIN 46
also requires certain disclosures by all holders of a significant variable
interest in a VIE that are not the primary beneficiary. The Company does not
have any material investments in variable interest entities; therefore, the
adoption of this interpretation will have no impact on the Company's
consolidated financial position or results of operations.

4. GOODWILL AND OTHER INTANGIBLE ASSETS-ADOPTION OF SFAS NO. 142.

     On June 29, 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). SFAS No. 142 addresses accounting and
reporting of acquired goodwill and other intangible assets and was adopted by
the Company effective January 1, 2002. The goodwill impairment testing
provisions of SFAS No. 142 must be applied to any goodwill or other intangible
assets that are recognized in the Company's financial statements at the time of
adoption. Also upon adoption, goodwill is no longer amortized and is tested for
impairment at least annually. Excluding goodwill amortization of $6,672, $2,465
and $5,369 for the year ended December 31, 2001, the five months ended December
31, 2000 and the fiscal year ended July 31, 2000, respectively, the Company's
net income (loss) from continuing operations before extraordinary items and
cumulative effect of change in accounting principle would have been $(42,659),
$12,006 and $17,541 for each period respectively. At December 31, 2002, the
Company had goodwill and other intangible assets totaling $122,933, net of
accumulated amortization.

     The Company completed step one of the transitional impairment test required
by SFAS No. 142 during the second quarter of 2002. The test indicated potential
impairment losses in certain of its original equipment and aftermarket
businesses. During the fourth quarter of 2002, the Company, with the assistance
of an outside valuation firm, performed the impairment tests of its goodwill
required by SFAS No. 142. As a result of this assessment, the Company recorded a
non-cash charge of $74,176, to reduce the carrying value of its goodwill to its
estimated fair value. In accordance with SFAS No. 142, the charge is presented
as a cumulative effect of change in accounting principle in the consolidated
statement of operations in the first quarter of 2002. The Company will perform
an impairment review on an annual basis (or more frequently if impairment
indicators arise). The first annual review was completed in the fourth quarter
of 2002 and indicated no additional impairment at that time.

                                       41

<PAGE>

5. RESTRUCTURING AND SPECIAL CHARGES

     The following disclosures about restructuring and special charges include
amounts related to discounted operations.

     In 2002, the Company recorded a charge of $2,824 in conjunction with plans
for the closure of the manufacturing and administrative functions of its
discontinued retail aftermarket gas engine business. The charge, which was
reported as a component of the loss from discontinued operations, included
$1,053 for the estimated cost of various voluntary and involuntary employee
separation programs associated with workforce reductions of approximately 165
production and administrative employees. A total of $300 was paid under these
programs in 2002 and the balance will be paid in 2003. The charge also included
$1,771 for the estimated cost of closing facilities.

     In the fourth quarter of 2001, the Company completed plans for the closure
and realignment of certain manufacturing facilities and administrative functions
in the United States, Canada and Europe. These actions were in response to
anticipated OE and aftermarket volume declines and to support the Company's
ongoing efforts to reduce cost and improve efficiencies. A one-time charge of
$39,349 was recorded in the fourth quarter of 2001 for the estimated cost of the
plan. The charge included $26,727 for the estimated cost of various voluntary
and involuntary employee separation programs associated with the resulting
workforce reductions of approximately 820 employees. A total of $2,482 and
$15,001 was paid in 2001 and 2002, respectively. An additional $4,593 and $4,651
is estimated to be paid in 2003 and 2004, respectively, for these programs. The
charge also included $8,192, net of salvage value, for the write-down of certain
assets which will no longer be used as a result of the closures and
realignments, and $4,430 of other costs. In addition, a reserve of $1,992 was
established in connection with the acquisition of XL in February 2001.

     In 2001, the Company recorded special charges-cost of goods sold of $21,586
and special charges-selling, general and administrative expenses of $17,246. The
special charges included a write down of $7,791 for inventories and customer
claims, and $1,165 for accounts receivable related to operations being closed in
the 2001 restructuring plan, classified with the cost of goods sold and selling,
general and administrative expenses, respectively. The special charges-cost of
goods sold also included $13,795 for higher than expected warranty returns for a
limited class of heavy-duty OEM alternators. The design and production issues
which caused the unusually high level of claims, have been corrected. The
special warranty charge includes $8,148 and $5,647 for claims in 2001 and 2002
and for anticipated claims in 2003 for the problems identified as part of the
unexpected returns. The special charge-selling, general and administrative
expenses also included $16,081 for disputed items related to the GM acquisition.
In the fourth quarter of 2001, the Company conceded these claims in connection
with the negotiation of other long-term agreements with GM and Delphi Automotive
Systems Corporation.

     In May 2000, the Company completed plans for the realignment of certain
manufacturing facilities in the United States, Canada and the United Kingdom. A
one-time charge of $35,222 was recorded in June 2000 for the estimated cost of
the plan. The reserve included $27,098 for the estimated cost of various
voluntary and involuntary employee separation programs associated with the
resulting workforce reductions of approximately 860 employees. A total of
$5,011, $15,961, $3,087 and $2,931 were paid in fiscal year 2000, the five
months ended December 31, 2000 and the year ended December 31, 2001 and 2002,
respectively. An additional $108 is expected to be paid in 2003. The reserve
also included $8,124, net of salvage value, for the write-down of certain
production assets which will no longer be used as a result of the realignment.
Additionally, a reserve of $1,050 was established in connection with the
acquisition of Elmot in March 2000.

     In May 1998, the Company offered an incentive separation payment to DRA
hourly employees through an employee termination program. A total of 337
employees accepted the Company's offer. A reserve of $26,515 was established for
these separation costs, $9,974 of which were paid in fiscal year 1998, $11,565
of which were paid in fiscal year 1999, and $3,889 of which were paid in fiscal
year 2000. An additional $900 was paid in the five months ended December 31,
2000 and $187 was paid in 2001.

                                       42

<PAGE>
     The following table summarizes the provisions and reserves for
restructuring charges:

<TABLE>
<CAPTION>
                                                               Termination  Exit/Impairment
                                                                 Benefits        Costs         Total
                                                              ---------------------------------------
<S>                                                           <C>           <C>             <C>
          Reserve at July 31, 1999                             $   4,975     $     891      $   5,866
          Provision in fiscal year 2000                           27,098         8,124         35,222
          Payments and charges in fiscal year 2000                (8,900)       (8,460)       (17,360)
          Reserve established in connection with acquisition       1,050           --           1,050
                                                              ---------------------------------------
          Reserve at July 31, 2000                                24,223           555         24,778
          Payments and charges in the five month
           transition period                                     (16,861)         (225)       (17,086)
                                                              ---------------------------------------
          Reserve at December 31, 2000                             7,362           330          7,692
          Provision in 2001                                       26,727        12,622         39,349
          Payments and charges in 2001                            (7,809)       (8,800)       (16,609)
          Reserve established in connection with acquisition       1,477           191          1,668
                                                              ---------------------------------------
          Reserve at December 31, 2001                            27,757         4,343         32,100
          Provision in 2002                                        1,053         1,771          2,824
          Payments and charges in 2002                           (18,248)       (3,030)       (21,278)
                                                              ---------------------------------------
          Reserve at December 31, 2002                         $  10,562     $   3,084      $  13,646
                                                              =======================================
</TABLE>

     The reserve balance includes $2,831, $4,156, and $538 at December 31, 2002,
December 31, 2001, and December 31, 2000, respectively, related to discontinued
operations.

6. ALLOWANCE FOR DOUBTFUL ACCOUNTS

   The activity in the allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
                                                          Year Ended         Five Months Ended   Year Ended
                                                          December 31           December 31        July 31
                                                   --------------------------------------------------------
                                                      2002           2001           2000            2000
                                                   --------------------------------------------------------
<S>                                                <C>            <C>        <C>                 <C>
               Balance at beginning of period      $  2,972       $  2,751      $   2,703         $   2,105
               Additions charged to costs
                and expenses                          4,498          1,107          1,237             1,134
               Acquisition of certain businesses         --             --             --             1,049
               Uncollectible accounts written off,
                net of recoveries                    (2,330)          (886)        (1,189)           (1,585)
                                                   --------------------------------------------------------
               Balance at end of period            $  5,140       $  2,972      $   2,751         $   2,703
                                                   ========================================================
</TABLE>

     The allowance does not include amounts related to discontinued operations
of $4,039, $1,706, $364 and $ 267 for the years ending December 31, 2002 and
2001, the five months ended December 31, 2000 and the year ended July 31, 2000,
respectively.

7. PROPERTY AND EQUIPMENT

   Property and equipment consists of the following:

                                                            December 31
                                                   ---------------------------
                                                      2002             2001
                                                   ---------------------------
            Land and buildings                      $  26,614       $   21,424
            Buildings under capital leases             26,800           23,813
            Leasehold improvements                     11,769           11,507
            Machinery and equipment                   246,774          237,838
                                                   ---------------------------
                                                    $ 311,957       $  294,582
                                                   ===========================

                                       43

<PAGE>

8. LONG-TERM DEBT

   Borrowings under long-term debt arrangements consist of the following:

                                                                December 31
                                                        ------------------------
                                                          2002           2001
                                                        ------------------------
         $250,000 Senior Credit Facility                $ 120,400     $       --
         $200,000 Senior Credit Facility                       --        117,087
         Senior Notes                                     145,000        145,000
         10 5/8 Senior Subordinated Notes                 140,000        140,000
         11% Senior Subordinated Notes                    163,310        163,037
         Other, including capital lease obligations        57,862         34,825
                                                        ------------------------
                                                          626,572        599,949
         Less current portion                              30,190          6,771
                                                        ------------------------
                                                        $ 596,382     $  593,178
                                                        ========================

Senior Credit Facility

     On June 28, 2002 the Company entered into a $250,000 secured, asset based,
revolving credit facility (the "Senior Credit Facility") with a syndicate of
banks led by Wachovia Bank, National Association and its subsidiary Congress
Financial Corporation. The Senior Credit Facility replaced the Company's
then-existing secured revolving credit facility of $200,000, which was due to
expire on March 31, 2003. The Senior Credit Facility extends through March 31,
2006 and has provisions for annual extensions thereafter.

     The Senior Credit Facility contains various restrictive covenants, which
include, among other things: (i) limitations on additional borrowings and
encumbrances; (ii) the maintenance of certain financial ratios and compliance
with certain financial tests and limitations; (iii) limitations on cash
dividends paid; (iv) limitations on investments and capital expenditures; and
(v) limitations on leases and sales of assets.

     The Senior Credit Facility is collateralized by liens on substantially all
assets of the Company and its domestic and certain foreign subsidiaries and by
the capital stock of such subsidiaries.

     At December 31, 2002, borrowings under the Senior Credit Facility were
$120,909 ($120,400, net of cash) and utilization of letters of credit totaled
$6,800, leaving $122,291 unused. Based on the collateral supporting the senior
credit facility at December 31, 2002, $50,710 was available.

     In 2002, the Company recorded an extraordinary loss of $1.1 million (net of
income taxes of $0.7 million) in connection with the early retirement of the
$200,000 revolving credit facility.

Senior Notes

     On December 22, 1997, the Company issued $145,000 of 8 5/8% Senior Notes
due December 15, 2007 (the "Senior Notes"). The proceeds from the Senior Notes
were $141,375, net of issuance costs. The proceeds were used to repay higher
interest bearing debt.

     The Senior Notes are general unsecured senior obligations of the Company
and rank pari passu in right of payment with all existing and future senior
indebtedness of the Company and senior in right of payment to all existing and
future subordinated obligations of the Company. In addition, the obligations of
the Company under the Senior Notes will be fully and unconditionally guaranteed
on a joint and several basis by each of the Company's existing and future
domestic restricted subsidiaries. The subsidiary guarantees will rank pari passu
in right of payment with all existing and future senior indebtedness of the
subsidiary guarantors and senior in right of payment to all existing and future
subordinate obligations of the subsidiary guarantors. The Senior Notes and the
subsidiary guarantees will be effectively subordinated to all existing and
future secured indebtedness of the Company and the subsidiary guarantors as well
as to any liabilities of subsidiaries other than subsidiary guarantors.

     The Senior Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after December 15, 2002, at the redemption prices set
forth in the note agreement plus accrued and unpaid interest, if any, to the
date of redemption. Interest is payable semi-annually on June 15 and December 15
of each year.

                                       44

<PAGE>

     Upon the occurrence of a change of control (as defined), each holder of the
Senior Notes will have the right to require the Company to purchase all or a
portion of such holder's notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase.

     The indenture pursuant to which the Senior Notes were issued contains
certain covenants that, among other things, limit the ability of the Company and
its restricted subsidiaries to (i) incur additional indebtedness, (ii) pay
dividends or make other distributions with respect to capital stock (as defined)
of the Company and its restricted subsidiaries, (iii) sell assets of the Company
or its restricted subsidiaries, (iv) issue or sell restricted subsidiary stock,
(v) enter into certain transactions with affiliates, (vi) create certain liens,
(vii) enter into certain mergers and consolidations and (viii) incur
indebtedness which is subordinate to senior indebtedness and senior to the
Senior Subordinated Notes and the 10 5/8% Senior Subordinated Notes.

10 5/8% Senior Subordinated Notes

     On August 2, 1996, the Company issued $140,000 of 10 5/8% Senior
Subordinated Notes due August 1, 2006 (the "10 5/8% Senior Subordinated Notes").

     The 10 5/8% Senior Subordinated Notes are unsecured senior subordinated
obligations of the Company and are subordinated in right of payment to all
existing and future senior indebtedness, pari passu with all present and future
senior subordinated indebtedness and senior to all present and future
subordinated indebtedness of the Company or the relevant subsidiary guarantors,
as defined in the indenture. The 10 5/8% Senior Subordinated Notes are also
effectively subordinated to any secured indebtedness to the extent of the value
of the assets securing such indebtedness.

     The 10 5/8% Senior Subordinated Notes are redeemable at the option of the
Company, in whole or in part, on or after August 1, 2001, at the redemption
prices set forth in the note agreement plus accrued and unpaid interest, if any,
to the redemption date. Interest is payable semi-annually on February 1 and
August 1 of each year.

     Upon the occurrence of a change of control, each holder of the 10 5/8%
Senior Subordinated Notes will have the right to require the Company to purchase
all or a portion of such holder's notes at a price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase.

     The indenture pursuant to which the 10 5/8% Senior Subordinated Notes were
issued contains certain covenants that, among other things, limit the ability of
the Company and its restricted subsidiaries to (i) incur additional
indebtedness, (ii) pay dividends or make other distributions with respect to
capital stock (as defined) of the Company and its restricted subsidiaries, (iii)
sell assets of the Company or its restricted subsidiaries, (iv) issue or sell
restricted subsidiary stock, (v) enter into certain transactions with
affiliates, (vi) create certain liens, (vii) enter into certain mergers and
consolidations and (viii) incur indebtedness which is subordinate to senior
indebtedness and senior to the Senior Subordinated Notes.

11% Senior Subordinated Notes

     On April 26, 2001, the Company issued $165,000 of 11% Senior Subordinated
Notes due May 1, 2009 (the "11% Senior Subordinated Notes"). Net proceeds (after
discounts, commissions, and expenses) of approximately $157,000 were used to
retire the GM Subordinated Debenture of approximately $19,000 and repay
approximately $138,000 outstanding under the Company's Senior Credit Facility.

     The 11% Senior Subordinated Notes are unsecured senior subordinated
obligations of the Company and are subordinated in right of payment to all
existing and future senior indebtedness, pari passu with all present and future
senior subordinated indebtedness and senior to all present and future
subordinated indebtedness of the Company or the relevant subsidiary guarantor,
as defined in the indenture. The 11% Senior Subordinated Notes are also
effectively subordinated to any secured indebtedness to the extent of the value
of the assets securing such indebtedness.

     The 11% Senior Subordinated Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after May 1, 2005, at the
redemption prices set forth in the note agreement plus accrued and unpaid
interest, if any, to the redemption date. Interest is payable semi-annually in
arrears on May 1 and November 1, and commenced on November 1, 2001.

     Upon the occurrence of a change in control, each holder of the 11% Senior
Subordinated Notes will have the right to require the Company to purchase all or
a portion of such holder's notes at a price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase.

                                       45

<PAGE>

     The indenture pursuant to which the 11% Senior Subordinated Notes were
issued contains certain covenants that, among other things, limit the ability of
the Company and its restricted subsidiaries to (i) incur additional indebtedness
unless a coverage ratio is met, (ii) make restricted payments, as defined, (iii)
make dividend payments or make other distributions on its capital stock, (iv)
sell assets of the Company or its restricted subsidiaries, (v) enter into
certain transactions with affiliates, (vi) create certain liens, and (vii) enter
into certain mergers and consolidations.

     In 2001, the Company recorded an extraordinary gain of $698 (net of income
taxes of $428) on the early retirement of the GM Subordinated Debenture.

Capital Lease Obligations

     Capital leases have been capitalized using nominal interest rates ranging
from 10.7% to 14.2%. The net book value of assets under capital leases were
$12,745 and $13,634 at December 31, 2002 and 2001, respectively.

Other

     Required principal payments of long-term debt and capitalized leases are as
follows:

                        2003                           $  30,189*
                        2004                               6,500
                        2005                               4,500
                        2006                             263,200
                        2007                             146,800
                        Thereafter                       175,383
                                                      ----------
                                                       $ 626,572
                                                      ==========

* Includes $16,868 due relative to foreign revolving credit facilities which
were renewed in January 2003 with a maturity date of January 2004.

9. EMPLOYEE BENEFIT PLANS

Agreements with GM

     In connection with the GM Acquisition, the Company and GM agreed to
allocate the responsibility for employee pension benefits and post-retirement
health care and life insurance on a pro-rata basis between DRA and GM. The
allocation is primarily determined upon years of service with DRA and aggregate
years of service with DRA and GM. Effective August 1, 1994, DRA established
hourly and salaried pension and post-retirement health care and life insurance
plans which are similar to the respective GM plans.

Pension and Post-Retirement Health Care and Life Insurance Plans

     DRA has defined benefit pension plans covering substantially all employees.
The plan covering salaried employees provides benefits that are based upon years
of service and final estimated average compensation. Benefits for hourly
employees are based on stated amounts for each year of service. DRA's funding
policy is to contribute amounts to provide the plans with sufficient assets to
meet future benefit payment requirements consistent with actuarial
determinations of the funding requirements of federal laws. Plan assets are
primarily invested in mutual funds which invest in both debt and equity
instruments.

     DRA maintains hourly and salaried benefit plans that provide
post-retirement health care and life insurance to retirees and eligible
dependents. The benefits are payable for life, although DRA retains the right to
modify or terminate the plans providing these benefits. The salaried plan has
cost sharing features such as deductibles and co-payments. Salaried employees
who were not GM employees prior to 1992 are not eligible for the above described
post-retirement benefits. It is DRA's policy to fund these benefits as claims
are incurred.

                                       46

<PAGE>

     The changes in benefit obligations and plan assets, components of expense,
and assumptions for the plans are as follows:

<TABLE>
<CAPTION>
                                                                                            Post-Retirement Health Care
                                                        Pension Benefits                     and Life Insurance Plans
                                            ----------------------------------------  ---------------------------------------
                                                 Year Ended     Five Months   Year        Year Ended     Five Months    Year
                                                 December 31       Ended     Ended       December 31        Ended      Ended
                                            -------------------   Dec. 31   July 31   ------------------   Dec. 31    July 31
                                               2002       2001     2000       2000      2002       2001      2000      2000
                                            ----------------------------------------  ---------------------------------------
<S>                                         <C>          <C>    <C>         <C>       <C>         <C>    <C>         <C>
Change in benefit obligations
Benefit obligation at beginning of year     $ 32,676   $ 25,447  $ 24,444  $ 18,406   $ 23,297  $ 18,000   $ 15,734  $ 15,040
Service cost                                   1,913      2,450       711     2,618      2,081     2,579        959     2,782
Interest cost                                  2,221      2,105       749     1,584      1,407     1,402        524     1,028
Amendments                                        --        117       636     2,496      3,832        --         --        --
Actuarial loss (gain)                          2,562      4,078      (334)      752      6,282     2,140      1,021      (404)
Benefits paid                                 (2,811)    (1,521)     (759)   (1,202)      (830)     (824)      (238)     (330)
Curtailment gains                                 --         --        --      (210)        --        --         --    (2,382)
                                            ----------------------------------------  ---------------------------------------
Benefit obligation at end of year           $ 36,561   $ 32,676  $ 25,447  $ 24,444   $ 36,069  $ 23,297   $ 18,000  $ 15,734
                                            ========================================  =======================================

Change in plan assets
Fair value of plan assets at beginning
 of year                                    $ 19,531   $ 20,736  $ 21,551  $ 16,749   $     --  $     --   $     --  $     --
Actual return on plan assets                  (1,762)    (1,271)     (170)    1,687         --        --         --        --
Employer contributions                         2,382      1,587        --     4,317        830       824        238        --
Benefits paid                                 (1,630)    (1,521)     (645)   (1,202)      (830)     (824)      (238)       --
                                            ----------------------------------------  ---------------------------------------
Fair value of plan assets at end of year    $ 18,521   $ 19,531  $ 20,736  $ 21,551   $     --  $     --   $     --  $     --
                                            ========================================  =======================================

Funded status                               $(18,040)  $(13,145) $ (4,711) $ (2,893)  $(36,069) $(23,297)  $(18,000) $(15,734)
Unrecognized actuarial loss (gain)            12,887      7,124      (304)   (1,014)    12,516    (2,515)    (4,794)   (5,905)
Unrecognized prior service cost                2,356      3,128     3,276     2,621         --        --         --        --
                                            ----------------------------------------  ---------------------------------------
Net amount recognized                       $ (2,797)  $ (2,893) $ (1,739) $ (1,286)  $(23,553) $(25,812)  $(22,794) $(21,639)
                                            ========================================  =======================================

Amounts recognized in the consolidated
 balance sheet consist of:
Accrued benefit liability                   $(14,427)  $(10,216) $ (4,424) $ (3,262)   (23,553) $(25,812)  $(22,794) $(21,639)
Intangible asset                               2,061      2,913     2,685     1,976         --        --         --        --
Accumulated other comprehensive loss           9,569      4,410        --        --         --        --         --        --
                                            ----------------------------------------  ---------------------------------------
Net amount recognized                       $ (2,797)  $ (2,893) $ (1,739) $ (1,286)  $(23,553) $(25,812)  $(22,794) $(21,639)
                                            ========================================  =======================================

Components of expense
Service costs                               $  1,913   $  2,450  $    711  $   2,618  $  2,081  $  2,579   $    959  $  2,782
Interest costs                                 2,221      2,105       749      1,584     1,407     1,402        524     1,028
Expected return on plan assets                (1,772)    (2,082)     (866)    (1,802)       --        --         --        --
Amortization of prior service cost               231        265       110        158        --        --         --        --
Recognized net actuarial loss (gain)             334          2        (8)        --        --      (139)       (91)     (314)
Curtailments                                     541         --        --        266    (4,916)       --         --        --
                                            ----------------------------------------  ---------------------------------------
Net periodic pension cost                   $  3,468   $  2,740  $    696  $   2,824  $ (1,428) $  3,842   $  1,392  $  3,496
                                            ========================================  =======================================

<CAPTION>
                                                                                            Post-Retirement Health Care
                                                        Pension Benefits                     and Life Insurance Plans
                                            ----------------------------------------  ---------------------------------------
                                                 Year Ended     Five Months   Year       Year Ended      Five Months   Year
                                                 December 31       Ended     Ended       December 31         Ended     Ended
                                            -------------------   Dec. 31   July 31  -------------------    Dec. 31   July 31
                                              2002       2001      2000      2000      2002       2001        2000      2000
                                            ----------------------------------------  ---------------------------------------
<S>                                         <C>          <C>    <C>         <C>       <C>         <C>    <C>         <C>
Weighted-average assumptions
Discount rate                                   6.75%      7.25%     7.75%      8.00%     6.75%     7.25%      7.75%     8.00%
Expected return on plan assets                  9.00%     10.00%    10.00%     10.00%       --        --         --        --
Rate of compensation increase                   5.00%      5.00%     5.00%      5.00%     5.00%     5.00%      5.00%     5.00%
</TABLE>

                                       47

<PAGE>

     A post-retirement health care curtailment gain of $4,916 was recorded in
2002 related to a workforce reduction (see note 5).

     Measurement of the accumulated post-retirement benefit obligation was based
on a 13.00% annual rate of increase in the cost of covered health care benefits.
The rate was assumed to decrease ratably to 4.75% through 2011 and remain level
at that rate thereafter. An increase and decrease of one-percentage-point in the
assumed health care trend rates would have the following effects on service and
interest cost in the year ended December 31, 2002 and the accumulated
post-retirement benefit obligation at December 31, 2002.

<TABLE>
<CAPTION>
                                                                                1% Increase     1% Decrease
                                                                               -----------------------------
<S>                                                                            <C>              <C>
Effect on total of service and interest cost components of net periodic
 post-retirement health care benefit cost                                        $    826         $   (627)
Effect on the health care component of the accumulated post-
 retirement benefit obligation                                                      8,128           (6,211)
</TABLE>

Defined Contribution Plans

     The Company sponsors two voluntary savings plans. One plan is for eligible
salaried employees and the other plan is for UAW hourly employees. These plans
allow participants to make contributions pursuant to section 401(k) of the
Internal Revenue Code. The salaried plan has Company matching contribution
provisions, while the hourly UAW plan does not. Charges to operations were
$2,513 in the fiscal year 2002, $2,234 in the fiscal year 2001, $911 in the five
month period ended December 31, 2000 and $1,731 in fiscal year 2000.

Profit Sharing Plans

     DRA sponsors a profit sharing plan covering UAW union employees.
Distributions are determined based upon formulas established by management and
are made annually. Profit sharing expense for the years ended December 31, 2002
and 2001, the five month period ended December 31, 2000 and the fiscal year
ended July 31, 2000 was $198, $0, $728 and $2,514, respectively.

10. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK

     On February 7, 2001, the Company agreed to a going private transaction with
its largest stockholder, Court Square Limited ("Court Square"), pursuant to
which Court Square made a cash tender offer for all of the Company's common
stock not owned by it. Following completion of the merger on March 14, 2001, the
New York Stock Exchange delisted the Company's common stock and the Company
terminated the registration of its common stock under the Exchange Act. For
financial accounting purposes the transaction was treated as a leveraged
recapitalization whereby the assets are not revalued and the excess purchase
price of the redeemed shares over the par value and paid-in capital of the
common stock and the redemption value of the preferred stock ($105,164) was
charged to the Company's retained earnings.

Preferred Stockholders Agreement

     In connection with the Company's recapitalization, the stockholders entered
into a Preferred Stockholders Agreement dated March 14, 2001 (the "Preferred
Stockholders Agreement"), containing additional agreements among the
stockholders regarding the Company's preferred stock. Subject to certain
limitations, certain stockholders may not sell any of their shares of preferred
stock without offering the other stockholders a pro rata opportunity to
participate in the sale. Subject to certain conditions, if holders of at least
50% of the common stock approve the sale of the Company, each stockholder has
agreed to consent to the sale and, if the sale includes the sale of stock, each
stockholder has agreed to sell all of the stockholder's preferred stock on the
terms and conditions approved by holders of a majority of the common stock then
outstanding.

Preferred Stock

     The Company's Amended and Restated Certificate of Incorporation provides
for the issuance of 3,500,000 shares of preferred stock, all of which will be
designated as 12% Series A Cumulative Compounding Preferred Stock. The preferred
stock has a stated value of $100 per share and is entitled to semi-annual
dividends which commenced September 15, 2001. Dividends, which are cumulative,
accrue at a rate of 12%, compounding annually. As of December 31, 2002,
2,237,257.23 shares of preferred stock were outstanding. Accrued preferred
dividends and the preferred stock are reflected in the Consolidated Balance
Sheet as Redeemable Preferred Stock at the current redemption value. The vote of
a majority of the outstanding shares of the preferred stock, voting as a
separate class, will be required to (1) create, authorize or issue any other

                                       48

<PAGE>

class or series of stock entitled to a preference prior to the preferred stock
upon any dividend or distribution or any liquidation, distribution of assets,
dissolution or winding up of the Company, or increase the authorized amount of
any such other class or series, or (2) amend the Certificate of Incorporation if
the amendment would adversely affect the relative rights and preferences of the
holders of the preferred stock. Except as described above or as otherwise
required by law, the preferred stock is not entitled to vote.

     The Company may not pay any dividend upon capital stock junior to the
preferred stock, except for a dividend payable in capital stock junior to the
preferred stock (including the common stock or junior stock), or redeem or
otherwise acquire shares of junior stock, unless all cumulative dividends on the
preferred stock have been paid in full. Upon liquidation, dissolution or winding
up, holders of preferred stock are entitled to receive out of the Company's
legally available assets, before any amount is paid to holders of junior stock,
an amount equal to $100 per share of preferred stock, plus all accrued and
unpaid dividends to the date of final distribution. If available assets are
insufficient to pay the holders of the outstanding shares of preferred stock in
full, the assets, or proceeds from the sale of the assets, will be distributed
ratably among the holders of the preferred stock. The preferred stock is not
mandatorily redeemable prior to April 16, 2021. The Company anticipates that the
dividends on the preferred stock will be declared and accrued but not paid. The
Company's ability to pay cash dividends, and to redeem the preferred stock, is
subject to restrictions contained in the senior credit facility, the 8 5/8%
Senior Notes due 2007, the 10 5/8% Senior Subordinated Notes due 2006 and the
11% Senior Subordinated Notes due 2009.

Common Stock

     The Company's Amended and Restated Certificate of Incorporation provides
for the issuance of 12,001,000 shares of common stock, divided into three
classes consisting of 1,000 shares of Class A Common Stock, 6,000,000 shares of
Class B Common Stock and 6,000,000 shares of Class C Common Stock. As of
December 31, 2002, 1,000.00 shares of Class A Common Stock, 2,485,337.49 shares
of Class B Common Stock and 16,687.00 shares of Class C Common Stock were
outstanding.

     The holders of Class A Common Stock are entitled to vote on all matters
submitted to a vote of the stockholders. The original holders of Class A Common
Stock, or Court Square, Citicorp or Citibank, N.A. or any direct or indirect
subsidiary of Citicorp or Citibank, N.A., in each case, to the extent that the
entity is the owner of Class A Common Stock, are entitled to that number of
votes equal to, in the aggregate, 51% of the total number of votes entitled to
be cast by the holders collectively owning all of the outstanding shares of
Class A Common Stock and Class B Common Stock. The number of votes to be cast by
the holder of Class A Common Stock may vary and is determined, in each instance,
prior to a vote of stockholders. If at any time the aggregate principal amount
of indebtedness outstanding under the (1) Indenture dated August 1, 1996 among
the Company, certain of its subsidiaries and National City Bank of Indiana; and
(2) Indenture dated December 22, 1997 among the Company, certain of the
Company's subsidiary guarantors and United States Trust Company of New York is
less than $50,000,000, the holder of Class A Common Stock will be entitled to
one vote for each share of Class A Common Stock held. So long as the holders of
the Class A Common Stock are entitled to more than one vote per share, in any
election of Company directors, 21% (rounded up to the nearest whole director) of
the directors to be elected shall be elected by a majority of the votes cast by
the holders of shares of outstanding Class B Common Stock other than Court
Square or any person that is or is deemed to be in the consolidated tax group of
which Court Square is a member.

     The holders of Class B Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. The
Company cannot amend the Amended and Restated Certificate of Incorporation,
enter into any plan of liquidation, recapitalization, reorganization,
reclassification, consolidation or merger, sell all or substantially all of the
Company's assets or stock or enter into any other business combination without
the approval of a majority of the holders of Class B Common Stock. Except as
required by law, the holders of Class C Common Stock have no voting rights.

     Under the Company's Amended and Restated Certificate of Incorporation,
shares of Class A Common Stock are convertible into an equal number of shares of
Class B Common Stock. Shares of Class B Common Stock are convertible into an
equal number of shares of Class C Common Stock. Shares of Class C Common Stock
are convertible into an equal number of shares of Class B Common Stock. In the
case of a conversion from Class C Common Stock, which is nonvoting, into Class B
Common Stock, which is voting, the holder of shares to be converted would be
permitted under applicable law to hold the total number of shares of Class B
Common Stock which would be held upon conversion.

                                       49

<PAGE>

Securities Transfer, Recapitalization and Holders Agreement

     In connection with the Company's recapitalization, the stockholders entered
into the Securities Transfer, Recapitalization and Holders Agreement dated March
14, 2001 (the "Stockholders Agreement"), containing certain agreements among the
stockholders regarding the Company's capital stock and corporate governance.

     According to the Stockholders Agreement, so long as Court Square and its
permitted transferees owns at least 5% of the Company's common stock
outstanding, Court Square has the right to designate observers to attend
meetings of the Board of Directors. The Stockholders Agreement contains
provisions which, with certain exceptions, restrict the ability of the
stockholders to transfer any of the Company's common stock or preferred stock.
Subject to certain conditions, if holders of at least 50% of the common stock
approve the sale of the Company, each stockholder has agreed to consent to the
sale and, if the sale includes the sale of stock, each stockholder has agreed to
sell all of the stockholder's common stock on the terms and conditions approved
by holders of a majority of the common stock then outstanding. Subject to some
limitations, certain stockholders may not sell any of their shares of common
stock without offering the other stockholders a pro rata opportunity to
participate in the sale.

     The Stockholders Agreement also provides for certain additional
restrictions on transfer of shares by the Company's executive officers and other
employees ("management investors"), including the Company's right to repurchase
certain shares upon termination of the management investor's employment prior to
March 14, 2006, at a formula price, and the grant of a right of first refusal in
the Company's favor in the event a management investor elects to transfer his
shares of common stock.

Registration Rights Agreement

     In connection with their entry into the Stockholders Agreement, the
stockholders entered into a Registration Rights Agreement dated March 14, 2001
(the "Registration Rights Agreement"). In accordance with the Registration
Rights Agreement, upon the written request of Court Square the Company will
prepare and file a registration statement with the SEC concerning the
distribution of all or part of the shares held by that party and its best
efforts to cause the registration statement to become effective. If at any time
the Company files a registration statement for common stock pursuant to a
request by Court Square or otherwise, it will allow the other parties to the
Registration Rights Agreement to have their shares of common stock (or a portion
of their shares under certain circumstances) included in the registered offering
of the Company's common stock. The Company is not bound by this requirement if
it is filing a registration statement on Form S-8, Form S-4 or any similar form,
a registration statement filed in connection with a share exchange or an
offering solely to its employees or existing stockholders, or a registration
statement registering a unit offering. The Company will pay the registration
expenses of the selling stockholders (other than underwriting commissions,
brokerage fees and transfer taxes applicable to the shares sold by the
stockholders or the fees and expenses of any accountants or other
representatives retained by the selling stockholder).

     In June 2001, Berkshire Hathaway Inc. ("Berkshire") purchased shares of
preferred stock and Class C Common Stock of the Company from Court Square and
shares of preferred stock and Class B Common Stock of the Company from World
Equity Partners, L.P. In November 2001, Dresdner Kleinwort Capital Partners 2001
LP ("Dresdner") purchased shares of preferred stock and Class C Common Stock of
the Company from Court Square. In connection with these transactions, the
Securities Holders Agreement, the Preferred Stockholders Agreement and the
Registration Rights Agreement were amended to make Berkshire and Dresdner
parties to those agreements pursuant to the terms specified in such amendments.

Dividends

     Payment of dividends is dependent upon certain factors, including the
Company's earnings, financial condition and capital requirements and the terms
of the Company's financing agreements. The ability of the Company to make
dividend payments is also restricted by the terms of certain of its debt
instruments.

                                       50

<PAGE>

11. INCOME TAXES

     The following is a summary of the components of the provision for income
taxes (benefit):

<TABLE>
<CAPTION>

                                                            Year Ended               Five
                                                            December 31          Months Ended   Year Ended
                                                    ----------------------------  December 31     July 31
                                                        2002          2001           2000          2000
                                                    ------------------------------------------------------
<S>                                                 <C>            <C>           <C>             <C>
               Current:
                  Federal                           $       --     $     --       $      62      $     669
                  State and local                         1,026        1,727            597          1,323
                  Foreign                                 6,544        3,480          3,188          7,279
                                                    ------------------------------------------------------
                                                          7,570        5,207          3,847          9,271
               Deferred:
                  Federal                                (6,244)     (13,107)         4,619          1,280
                  State and local                          (918)      (3,258)            54          2,799
                  Foreign                                 6,781        1,075         (2,060)          (863)
                                                    ------------------------------------------------------
                                                           (381)     (15,290)         2,613          3,216
                                                    ------------------------------------------------------
                                                    $     7,189    $ (10,083)     $   6,460      $  12,487
                                                    ======================================================
</TABLE>

     Income (loss) from continuing operations before income taxes, minority
interest in income of subsidiaries, loss from unconsolidated joint ventures,
extraordinary items and cumulative effect of change in accounting principle was
taxed in the following jurisdictions:

<TABLE>
<CAPTION>

                                                             Year Ended               Five
                                                             December 31          Months Ended  Year Ended
                                                    ----------------------------   December 31    July 31
                                                        2002           2001           2000         2000
                                                    ------------------------------------------------------
<S>                                                 <C>            <C>             <C>           <C>
               Domestic                              $  (16,745)   $   (83,989)    $  12,241     $   6,749
               Foreign                                   32,588         38,224         7,800        26,991
                                                    ------------------------------------------------------
                                                     $   15,843    $   (45,765)    $  20,041     $  33,740
                                                    ======================================================

</TABLE>

     A reconciliation of income taxes at the United States federal statutory
rate to the effective income tax rate follows:

<TABLE>
<CAPTION>

                                                            Year Ended             Five
                                                            December 31        Months Ended  Year Ended
                                                      -----------------------  December 31    July 31
                                                        2002           2001        2000        2000
                                                      -----------------------------------------------
<S>                                                   <C>            <C>      <C>           <C>
               Federal statutory income tax rate        35.0%         35.0%       35.0%         35.0%
               State and local income taxes--
                net of federal tax benefit               0.4           1.3         2.2           7.9
               Foreign operations                       (3.1)         12.4        (6.6)        (10.6)
               Goodwill                                   --          (1.3)        2.2           2.4
               Provision for or release of valuation
                allowance for net deferred tax assets     --         (21.6)         --            --
               Settlement of IRS audit                  (5.9)           --          --            --
               Sub part F and other permanent items     19.0            --          --            --
               Other items                                --          (3.8)       (0.6)          2.3
                                                      ----------------------------------------------
               Effective income tax rate                45.4%         22.0%       32.2%         37.0%
                                                      ==============================================
</TABLE>

     State and local income taxes include provisions for Indiana and Michigan
which do not provide proportional benefit in loss years.

                                       51

<PAGE>

     The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:

<TABLE>
<CAPTION>
                                                                       December 31
                                                               ------------------------
                                                                   2002         2001
                                                               ------------------------
<S>                                                            <C>            <C>
         Deferred tax assets:
            Restructuring charges                               $  11,406     $  21,969
            Employee benefits                                      14,454        13,709
            Inventories                                             4,927         5,049
            Warranty                                                4,689         3,579
            Non-compete agreements                                    824           824
            Alternative minimum tax credits                         2,905         3,937
            Foreign deferred assets                                 1,823         3,692
            Net operating loss carryforwards                       53,990        35,783
            Other                                                   7,620         6,104
                                                               ------------------------
         Total deferred tax assets                                102,638        94,646
            Valuation allowance                                   (34,153)      (20,604)
                                                               ------------------------
         Deferred tax assets net of valuation allowance            68,485        74,042
         Deferred tax liabilities:
            Depreciation                                          (14,807)      (19,462)
            Foreign deferred liabilities                           (3,418)       (1,586)
            Research expenses                                      (6,663)       (6,985)
            Other                                                 (16,926)      (14,358)
                                                               ------------------------
               Total deferred tax liabilities                     (41,814)      (42,391)
                                                               ------------------------
            Net deferred tax asset                              $  26,671     $  31,651
                                                               ========================
</TABLE>

     At December 31, 2002, the Company had unused Federal net operating loss
carryforwards of approximately $102,078 that expire during 2018 through 2022.
The Company also had unused alternative minimum tax credit carryforwards of
$2,905 that may be carried forward indefinitely. Management expects that future
taxable earnings, primarily in the U.S., will be adequate to allow for
realization of all net deferred tax assets. The Company's carryforwards expire
at specific future dates, and utilization of certain carryforwards is limited to
specific amounts each year. Accordingly, the Company has recorded a valuation
allowance against a portion of these net deferred tax assets. Income tax
payments (refunds), including state taxes, for the years ended December 31, 2002
and 2001, five month period ended December 31, 2000 and year ended July 31, 2000
were $5,332, $1,277, $743 and $10,726, respectively.

     No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign subsidiaries ($82,768 at December 31, 2002) because it is expected that
such earnings will be reinvested in these foreign operations indefinitely. It is
not practical to estimate the amount of taxes that might be payable on the
eventual remittances of such earnings.

                                       52

<PAGE>

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

     The Company's other comprehensive loss consists of unrealized net gains and
losses on the translation of the assets and liabilities of its foreign
operations, currency instruments and interest rate swaps and minimum pension
liability adjustments. The before tax income (loss), related income tax effect
and accumulated balance are as follows:

<TABLE>
<CAPTION>
                                                   Foreign      Unrealized      Unrealized     Minimum    Accumulated
                                                  Currency   Gains/(Losses)on   Losses on      Pension       Other
                                                 Translation     Currency      Interest Rate  Liability  Comprehensive
                                                 Adjustment     Instruments       Swaps      Adjustments      Loss
                                                ----------------------------------------------------------------------
<S>                                             <C>          <C>           <C>           <C>         <C>
      Balance at July 31, 1999                   $  (6,516)          --               --            --      $  (6,516)
         Before tax loss                            (6,859)          --               --            --         (6,859)
         Income tax effect                          (2,538)          --               --            --         (2,538)
                                                ---------------------------------------------------------------------
         Other comprehensive loss                   (4,321)          --               --            --         (4,321)
                                                ---------------------------------------------------------------------
      Balance at July 31, 2000                     (10,837)          --               --            --        (10,837)
         Cumulative effect of accounting
          change for derivative instruments             --          241               --                          241
         Before tax loss                            (2,569)      (4,561)          (1,505)           --         (8,635)
         Income tax effect                            (822)        (691)            (482)           --         (1,995)
                                                ---------------------------------------------------------------------
         Other comprehensive loss                   (1,747)      (3,870)          (1,023)           --         (6,640)
                                                ---------------------------------------------------------------------
      Balance at December 31, 2000                 (12,584)      (3,629)          (1,023)           --        (17,236)
         Before tax (loss) income                   (8,322)       4,320           (2,523)       (4,410)       (10,935)
         Income tax effect                          (2,698)         691           (1,049)       (1,675)        (4,731)
                                                ---------------------------------------------------------------------
         Other comprehensive (loss) income          (5,624)       3,629           (1,474)       (2,735)        (6,204)
                                                ---------------------------------------------------------------------
      Balance at December 31, 2001                 (18,208)          --           (2,497)       (2,735)       (23,440)
         Before tax (loss) income                   10,038*         398            4,027        (5,159)         9,304
         Income tax effect                           2,299           63            1,530        (1,960)         1,932
                                                ---------------------------------------------------------------------
         Other comprehensive (loss) income           7,739          335            2,497        (3,199)         7,372
                                                ---------------------------------------------------------------------
      Balance at December 31, 2002               $ (10,469)    $    335         $     --      $ (5,934)     $ (16,068)
                                                =====================================================================
</TABLE>

* Includes a loss of $3,394 associated with the substantial liquidation of the
discontinued retail aftermarket gas engine business.

13. TRANSACTIONS WITH GM

     The Company and GM have entered into several transactions and agreements
related to their respective businesses. In addition to the transactions
disclosed elsewhere in the accompanying consolidated financial statements and
related notes, the Company entered into the following transactions with GM:

<TABLE>
<CAPTION>
                                                  Year Ended                     Five
                                                  December 31                Months Ended      Year Ended
                                         ----------------------------         December 31         July 31
                                            2002              2001               2000              2000
                                         -----------------------------------------------------------------
<S>                                      <C>                <C>              <C>               <C>
               Sales                     $  253,567         $ 254,058         $  120,326        $  322,418
               Material purchases
                and costs for services       12,123            16,619              2,002             4,500
</TABLE>

               In addition, the Company had the following balances with GM:

                                                     Year Ended      Year Ended
                                                     December 31     December 31
                                                        2002            2001
                                                    -------------   ------------
               Trade accounts receivable             $    9,578      $   23,825
               Other receivables                             --             207

                                       53

<PAGE>

14. LEASE COMMITMENTS

     The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $11,012 for 2002, $9,879 for 2001, $4,064 for the
5 months ending December 31, 2000, and $9,091 for the fiscal year ending 2000,
respectively. Rental commitments at December 31, 2002 for long-term
non-cancelable operating leases were as follows:

               Year ending 2003                   $    9,034
               Year ending 2004                        7,388
               Year ending 2005                        6,128
               Year ending 2006                        4,234
               Year ending 2007                        3,633
               Thereafter                              5,863
                                                  ----------
                                                  $   36,280
                                                  ==========


15. COMMITMENTS AND CONTINGENCIES

     The Company is party to various legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business, including those relating to commercial transactions, product
liability, safety, health, taxes, environmental and other matters. The Company
believes that the ultimate liability, if any, in excess of amounts already
provided for in the financial statements or covered by insurance on the
disposition of these matters will not have a material adverse effect on the
financial position, results of operations or cash flows of the Company.

     Remy Mexico Holdings, S. de R.L. de C.V. ("RMH"), an indirect subsidiary of
the Company, and GCID Autopartes, S.A. de C.V. ("GCID") are parties to a series
of agreements, including a partnership agreement. The partnership agreement
created Delco Remy Mexico, S. de R.L. de C.V. ("DRM") which operates certain
manufacturing facilities in Mexico. GCID is the minority partner with a 24%
ownership interest. RMH and GCID signed a letter of intent on or about May 3,
2000, whereby GCID agreed to terminate certain of the agreements in exchange for
a $13,000,000 termination payment by RMH to GCID, but the transaction was never
finalized. In June 2001, GCID declared RMH in default under the partnership
agreement, alleging that RMH failed to conduct the business of the partnership
in accordance with that agreement. In August 2001, GCID instituted an
arbitration proceeding before the American Arbitration Association seeking
damages for the alleged breaches of the partnership agreement and breaches of
fiduciary duty. RMH has denied any such breaches.

     On January 2, 2002, GCID notified RMH that it was terminating the
partnership for the alleged breach of the partnership agreement by RMH and
demanded that RMH purchase GCID's partnership interest in DRM. On March 11,
2002, GCID filed the First Amended Arbitration Demand adding additional claims
and parties, including DRM and other affiliates of RMH: Remy Componentes. S. de
R.L. de C.V. and Delco Remy America, Inc. (together with RMH, the "Named
Parties"). The First Amended Demand seeks damages for breach of fiduciary duty,
breaches of various contracts between and among the various parties, and
tortious interference with contractual relations. The damages include a claim of
approximately $13,000,000 for the purchase of GCID's interest in the Company and
a claim for $17,000,000 for the alleged breach of a Service Agreement between
the Company and GCI Services, S.A. de C.V. ("GCIS"), an affiliate of GCID,
pursuant to which GCIS provides labor to the Partnership. On September 30, 2002,
GCID and GCIS served expert reports claiming that GCID is owed approximately
$23,300,000 for the purchase of its partnership interest in DRM and that GCIS is
owed approximately $17,650,000 under the Service Agreement.

     On January 24, 2003, GCID and GCIS filed a Second Amended Arbitration
Demand adding additional claims of breach of contract against the Named Parties.
On January 31, 2003, the Named Parties filed an Answer to the Second Amended
Demand denying liability for all claims. The arbitration hearing is scheduled to
begin May 19, 2003.

     The Company disputes all of the claims alleged in both the First and Second
Amended Arbitration Demands and denies any liability for damages to GCID or any
of its affiliates. GCIS continues to provide services to DRM. In addition,
another affiliate of GCID, Sistemas y Componentes Electricos, S.A. de C.V.,
continues to be the leaseholder of the premises occupied by DRM.

     The Company believes that the Named Parties have meritorious defenses to
the action, but it is unable to predict whether the proceedings will have a
material adverse effect on the Company.

                                       54

<PAGE>

     Remy Reman facilities in Mississippi and the World Wide facility in
Virginia have identified certain possible violations of state air laws and
notified the applicable state agencies under the state voluntary audit
disclosure rules. The state agencies have either requested further information
or have not responded to the subsidiaries. The subsidiaries have or are in the
process of responding to the information requests, and they are currently in
compliance with the air permit requirements. At this time, it is unknown whether
the state environmental agencies intend to pursue enforcement actions for the
past violations or whether penalties, if sought, will be material.

     The Company may also be required to make additional payments in connection
with its acquisitions of Knopf, Delco Remy Mexico, Mazda and AMT. The Company
expects that the aggregate amount of these additional payments will be in the
range of $15 million to $28 million payable in 2003 to 2006.

16. BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION

     The Company is a global vehicular parts designer, manufacturer,
remanufacturer, marketer and distributor, and a provider of core exchange
services. Products include starter motors, alternators, engines, transmissions,
traction control systems, torque converters and fuel systems which are
principally sold or distributed to OEMs for both original equipment manufacture
and aftermarket operations, as well as to warehouse distributors and retail
automotive parts chains. It manages its business and operates in a single
reportable business segment. Because of the similar economic characteristics of
the operations, including the nature of products, production processes,
customers and methods of distribution, those operations have been aggregated
following the provisions of SFAS No. 131 for segment reporting purposes.

     The Company is a multi-national corporation with operations in many
countries, including the United States, Canada, Mexico, Brazil, Hungary, Poland,
Germany, South Korea, the United Kingdom, Ireland, Belgium, Tunisia and the
Netherlands. As a result, the Company's financial results could be significantly
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which the Company distributes its
products. The Company's operating results are exposed to changes in exchange
rates between the U.S. dollar and the South Korean Won, the Mexican Peso and
various European currencies. Exposure to variability in foreign currency
exchange rates is managed primarily through the use of natural hedges, whereby
funding obligations and assets are both denominated in the local currency. From
time to time, the Company enters into exchange agreements to manage its exposure
arising from fluctuating exchange rates related to specific transactions. Sales
are attributed to geographic locations based on the location of product
production.

<TABLE>
<CAPTION>
                                                                                   Five
                                                         Year Ended            Months Ended    Year Ended
                                                         December 31            December 31      July 31
                                                     2002           2001           2000           2000
                                                 ---------------------------------------------------------
<S>                                              <C>            <C>            <C>            <C>
            Net sales to external customers:
               United States                     $   915,521    $    873,378   $    373,757   $    919,329
               Europe                                 94,687          91,587         27,303         62,427
               Canada                                  3,655           3,303          1,133          3,633
               Asia Pacific                           22,210          13,690         10,934         33,854
               Latin America                          33,279          25,194          9,073         13,611
                                                 ---------------------------------------------------------
                  Total net sales                $ 1,069,352    $  1,007,152   $    422,200   $  1,032,854
                                                 =========================================================
</TABLE>

                                                         December 31
                                                 ---------------------------
                                                     2002           2001
                                                 ---------------------------
            Long-lived assets:
               United States                     $   242,655    $    281,669
               Europe                                 47,197          62,131
               Canada                                    187             185
               Asia Pacific                           32,904          28,993
               Latin America                          27,766          26,674
                                                 ---------------------------
                  Total long-lived assets        $   350,709    $    399,652
                                                 ===========================

                                       55

<PAGE>

     Customers that accounted for a significant portion of consolidated net
sales were as follows:

<TABLE>
<CAPTION>
                                                                              Five
                                                    Year Ended            Months Ended   Year Ended
                                                    December 31            December 31     July 31
                                             -------------------------
                                                 2002          2001           2000          2000
                                             -------------------------------------------------------
          <S>                                <C>            <C>            <C>            <C>
          General Motors Corporation:
             North American
              OE Operations                  $  200,305    $   193,969     $   96,399     $  258,076
             Other                               53,262         60,089         23,927         64,342
          International Truck and
           Engine Corporation                    84,584        117,345         53,433        141,443
</TABLE>

     Following is a summary of the composition by product category of the
Company's sales to external customers. Third-party sales for core exchange
services are included in the "Other" category.

<TABLE>
<CAPTION>
                                                                              Five
                                                    Year Ended            Months Ended   Year Ended
                                                    December 31            December 31     July 31
                                             -------------------------
                                                2002           2001           2000          2000
                                             -------------------------------------------------------
          <S>                                <C>           <C>             <C>          <C>
          Electrical systems                 $   796,713   $   741,641     $  337,308   $   859,111
          Powertrain/drivetrain                  207,964       202,392         56,776       136,154
          Other                                   64,675        63,119         28,116        37,589
                                             ------------------------------------------------------
          Total                              $ 1,069,352   $ 1,007,152     $  422,200   $ 1,032,854
                                             ======================================================
</TABLE>

17.  OTHER INFORMATION

Supplemental Cash Flow Information

<TABLE>
<CAPTION>
                                                                              Five
                                                    Year Ended            Months Ended   Year Ended
                                                    December 31            December 31     July 31
                                             -------------------------
                                                2002           2001           2000          2000
                                             -------------------------------------------------------
          <S>                                <C>           <C>             <C>          <C>
          Cash paid for interest             $   63,298    $   57,901      $   22,636   $    46,835
          Cash paid for income taxes,
           net of refunds received                5,332         1,277             743        10,726
          Detail of acquisitions:

             Fair value of assets acquired   $    1,774    $    9,119      $       --   $    39,703
             Liabilities assumed                     --       (10,152)             --       (15,035)
             Notes issued                       (10,942)           --              --            --
             Goodwill recorded                    9,918        24,146              --        37,493
             Minority interest                   16,508         5,775              --            --
                                             ------------------------------------------------------
             Net cash paid for acquisitions      17,258        28,888              --        62,161
             Cash acquired                           --            82              --         1,669
                                             ------------------------------------------------------
             Total                           $   17,258    $   28,970      $       --   $    63,830
                                             ======================================================
</TABLE>

Research and Development Costs

     The Company spent approximately $15,200, $15,500, $7,200 and $16,300 in the
years ended December 31, 2002 and 2001, five month period ended December 31,
2000 and fiscal year ended July 31, 2000, respectively, on research and
development activities. All expenditures were Company funded.

                                       56

<PAGE>

18.  FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
     SUBSIDIARIES

     The Company conducts a significant portion of its business through
subsidiaries. The Senior Notes and the Senior Subordinated Notes referred to in
Note 8, Long-term Debt, are fully and unconditionally guaranteed, jointly and
severally, by certain direct and indirect wholly-owned subsidiaries (the
Subsidiary Guarantors). Certain of the Company's subsidiaries do not guarantee
the Senior Notes and the Senior Subordinated Notes (the Non-Guarantor
Subsidiaries). The claims of creditors of Non-Guarantor Subsidiaries have
priority over the rights of the Company to receive dividends or distributions
from such subsidiaries.

     Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at
December 31, 2002 and 2001 and for the years ended December 31, 2002 and 2001,
five month period ended December 31, 2000 and the fiscal year ended July 31,
2000.

     The equity method has been used by the Company with respect to investments
in subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented.

     The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:

<TABLE>
     <S>                                    <C>
     Guarantor Subsidiaries                 Non-Guarantor Subsidiaries
     Delco Remy America, Inc.               Delco Remy Hungary RT (formerly Autovill RT Ltd.)
     Nabco, Inc.                            Power Investments Canada Ltd.
     The A&B Group, Inc.                    Remy UK Limited
     A&B Enterprises, Inc.                  Delco Remy International (Europe) GmbH
     Dalex, Inc.                            Remy India Holdings, Inc.
     A&B Cores, Inc.                        Remy Korea Holdings, Inc.
     R&L Tool Company, Inc.                 World Wide Automotive Distributors, Inc.
     MCA, Inc. of Mississippi               Kraftube, Inc.
     Power Investments, Inc.                Tractech (Ireland) Ltd.
     Franklin Power Products, Inc.          Central Precision Limited
     International Fuel Systems, Inc.       Electro Diesel Rebuild BVBA
     Power Investments Marine, Inc.         Electro-Rebuild Tunisia S.A.R.L.
     Marine Corporation of America          Delco Remy Mexico, S. de R.L. de C.V.
     Powrbilt Products, Inc.                Publitech, Inc.
     World Wide Automotive, Inc.            Delco Remy Brazil, Ltda.
     Ballantrae Corporation                 Western Reman Ltd.
     Tractech, Inc.                         Engine Rebuilders Ltd.
     Williams Technologies, Inc.            Reman Transport Ltd.
     Western Reman, Inc.                    Delco Remy Remanufacturing
     Engine Master, L.P.                    Delco Remy Germany GmbH
     M & M Knopf Auto Parts, Inc.           Remy Componentes S. de R.L. de C.V.
     Reman Holdings, Inc.                   Delco Remy Belgium BVBA
     Remy International, Inc.               Magnum Power Products, LLC
     Jax Reman, LLC                         Elmot-DR, Sp.z.o.o
                                            XL Component Distribution Ltd.
                                            Automatic Transmission International A/S
</TABLE>

                                       57

<PAGE>

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                         Condensed Consolidating Balance Sheet
                                                                                  December 31, 2002
                                                      -------------------------------------------------------------------------
                                                       Delco Remy
                                                      International                  Non-
                                                      Inc. (Parent    Subsidiary   Guarantor
                                                      Company Only)   Guarantors  Subsidiaries  Eliminations       Consolidated
                                                      -------------------------------------------------------------------------
<S>                                                   <C>             <C>         <C>           <C>                <C>
Assets:
Current assets:
   Cash and cash equivalents                          $         1      $     203    $  12,692    $       --          $  12,896
   Trade accounts receivable                                   --        118,070       31,540            --            149,610
   Other receivables                                           --          3,596        9,335            --             12,931
   Inventories                                                 --        233,124       57,880        (1,109)/(c)/      289,895
   Deferred income taxes                                   14,924         (1,567)       1,066            --             14,423
   Assets of discontinued operations                           --          2,319        1,242            --              3,561
   Other current assets                                     6,039          1,423        7,973            --             15,435
                                                      ------------------------------------------------------------------------
Total current assets                                       20,964        357,168      121,728        (1,109)           498,751
Property and equipment                                         57        205,075      106,825            --            311,957
Less accumulated depreciation                                  36        111,596       30,598            --            142,230
                                                      ------------------------------------------------------------------------
Property and equipment, net                                    21         93,479       76,227            --            169,727
Deferred financing costs                                   17,268             --           --            --             17,268
Goodwill, net                                                  --        115,461        7,472            --            122,933
Investment in affiliates                                  451,616             --           --      (439,725)/(a)/       11,891
Deferred income taxes                                      16,686         (1,777)      (2,661)           --             12,248
Other assets                                                9,581          4,886        2,175            --             16,642
                                                      ------------------------------------------------------------------------
Total assets                                          $   516,136      $ 569,217    $ 204,941     $(440,834)         $ 849,460
                                                      ========================================================================

Liabilities and stockholders' equity:
Current liabilities:
   Accounts payable                                   $       790      $  91,982    $  50,630    $       --          $ 143,402
   Intercompany accounts                                   (9,592)        37,113      (26,920)         (601)/(c)/           --
   Accrued interest payable                                 9,743             --           --            --              9,743
   Accrued restructuring charges                               --         10,260          555            --             10,815
   Liabilities of discontinued operations                      --          1,579        4,954            --              6,533
   Other liabilities and accrued expenses                   7,709         45,292       13,946            --             66,947
   Current portion of long term debt                           --            991       29,199            --             30,190
                                                      ------------------------------------------------------------------------
Total current liabilities                                   8,650        187,217       72,364          (601)           267,630
Long-term debt, less current portion                      568,710         17,861        9,811            --            596,382
Post-retirement benefits other than pensions                   --         23,553           --            --             23,553
Accrued pension benefit                                       454         13,973           --            --             14,427
Other non-current liabilities                               4,918          6,402          962            --             12,282
Minority interest in subsidiary                                --          9,456        8,394            --             17,850
Redeemable preferred stock                                274,074             --           --            --            274,074
Stockholders' equity:
   Common stock:
      Class A Shares                                           --             --           --            --                 --
      Class B Shares                                            3             --           --            --                  3
      Class C Shares                                           --             --           --            --                 --
   Subsidiary investment                                       --        291,416      108,650      (400,066)/(a)/           --
   Retained earnings (deficit)                           (340,673)        25,326       14,841       (40,167)/(b)/     (340,673)
   Accumulated other comprehensive loss                        --         (5,987)     (10,081)           --            (16,068)
                                                      ------------------------------------------------------------------------
Total stockholders' equity (deficit)                     (340,670)       310,755      113,410      (440,233)          (356,738)
                                                      ------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit)  $   516,136      $ 569,217    $ 204,941     $(440,834)         $ 849,460
                                                      ========================================================================
</TABLE>

_________
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.

                                       58

<PAGE>

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                   Condensed Consolidating Statement of Operations
                                                                         For the Year Ended December 31, 2002
                                                      -------------------------------------------------------------------------
                                                       Delco Remy
                                                      International                  Non-
                                                      Inc. (Parent    Subsidiary   Guarantor
                                                      Company Only)   Guarantors  Subsidiaries  Eliminations       Consolidated
                                                      -------------------------------------------------------------------------
<S>                                                   <C>             <C>         <C>           <C>                <C>
Net sales                                             $        --     $1,060,115    $ 436,623    $ (427,386)/(a)/  $ 1,069,352
Cost of goods sold                                             --        926,790      390,857      (427,386)/(a)/      890,261
                                                      ------------------------------------------------------------------------
Gross profit                                                   --        133,325       45,766            --            179,091
Selling, general and administrative expenses               13,531         68,753       18,916            --            101,200
Amortization of goodwill and intangibles                    1,000             97          205            --              1,302
                                                      ------------------------------------------------------------------------
Operating (loss) income                                   (14,531)        64,475       26,645            --             76,589
Interest expense                                          (49,182)        (8,580)      (1,152)           --            (58,914)
Other non-operating income (expense)                       (4,133)           438        1,863            --             (1,832)
                                                      ------------------------------------------------------------------------
Income (loss) from continuing operations
 before income tax (benefit), minority
 interest in income of subsidiaries, income
 from unconsolidated joint ventures and equity in
 earnings of subsidiaries:                                (67,846)        56,333       27,356            --             15,843
Income taxes (benefit)                                    (28,115)        21,879       13,425            --              7,189
Minority interest in income of subsidiaries                    --         (2,169)      (2,076)           --             (4,245)
Income from unconsolidated joint ventures                      --             --       (3,830)           --             (3,830)
Equity in earnings of subsidiaries                        (91,697)            --           --        91,697/(b)/            --
                                                      ------------------------------------------------------------------------
Income (loss) before extraordinary item                  (131,428)        32,285        8,025        91,697                579
Loss on discontinued operations                                --        (27,352)     (30,479)           --            (57,831)
Income tax (benefit)                                           --             --           --            --                 --
                                                      ------------------------------------------------------------------------
Net loss on discontinued operations                            --        (27,352)     (30,479)           --            (57,831)
Extraordinary item:
Gain on early extinguishment of debt,
 net of income tax                                         (1,108)            --           --            --             (1,108)
Cumulative effect of change in
 accounting principle                                          --        (50,909)     (23,267)           --            (74,176)
                                                      ------------------------------------------------------------------------
Net loss                                                 (132,536)       (45,976)     (45,721)       91,697           (132,536)

Preferred dividends                                        29,375             --           --            --             29,375
                                                      ------------------------------------------------------------------------
Loss available to common stockholders                 $  (161,911)    $  (45,976)   $ (45,721)   $   91,697        $  (161,911)
                                                      ========================================================================
</TABLE>

__________
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.

                                       59

<PAGE>

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                         Condensed Consolidating Statement of Cash Flows
                                                                               For the Year Ended December 31, 2002
                                                           ----------------------------------------------------------------------
                                                             Delco Remy
                                                            International                  Non-
                                                            Inc. (Parent    Subsidiary   Guarantor
                                                            Company Only)   Guarantors  Subsidiaries  Eliminations  Consolidated
                                                           ----------------------------------------------------------------------
<S>                                                        <C>             <C>          <C>           <C>           <C>
Operating Activities:
Net loss                                                    $  (132,536)   $ (45,976)   $ (45,721)    $  91,697      $(132,536)
   Adjustments to reconcile net income (loss)
    to net cash provided by (used in)
    operating activities:
   Cumulative effect of change in
    accounting principle                                             --       50,909       23,267            --         74,176
   Loss from discontinued operations                                 --       15,783       13,800            --         29,583
   Loss on disposal of discontinued operations                       --       11,569       16,679            --         28,248
   Extraordinary item                                             1,108           --           --            --          1,108
   Depreciation                                                      11       19,740        9,536            --         29,287
   Amortization                                                   1,000           97          205            --          1,302
   Minority interest in income of subsidiaries                       --        2,169        2,076            --          4,245
   Loss from unconsolidated joint ventures                           --           --        3,830            --          3,830
   Equity (loss) in earnings of subsidiaries                     91,697           --           --       (91,697)            --
   Deferred income taxes                                         (1,187)       1,238        5,504            --          5,555
   Post retirement benefits other than pensions                      --       (2,259)          --            --         (2,259)
   Accrued pension benefits                                         454        4,938       (1,181)           --          4,211
   Non-cash interest expense                                      3,754          339           --            --          4,093
Changes in operating assets and liabilities,
 net of acquisitions:
   Accounts receivable                                               --       12,964       (7,170)           --          5,794
   Inventories                                                       --        5,440      (10,988)           --         (5,548)
   Accounts payable                                                (514)      (4,757)      19,892            --         14,621
   Intercompany accounts                                         50,080      (15,395)     (34,685)           --             --
   Other current assets and liabilities                          (1,323)      10,098       (5,252)           --          3,523
   Cash payments for restructuring charges                           --      (12,639)      (4,249)           --        (16,888)
   Other non-current assets and liabilities, net                (21,754)       8,822        7,098            --         (5,834)
                                                            ------------------------------------------------------------------
Net cash provided by (used in) operating activities              (9,210)      63,080       (7,359)           --         46,511

Investing Activities:
Acquisition, net of cash acquired                                    --      (17,005)        (253)           --        (17,258)
Purchases of property and equipment                                  --      (12,551)      (7,876)           --        (20,427)
Investments in joint ventures                                    (3,000)           --           --           --         (3,000)
                                                            ------------------------------------------------------------------
Net cash used in investing activities                            (3,000)     (29,556)      (8,129)           --        (40,685)

Financing Activities:
Proceeds from issuances of long-term debt                       144,769           --           --            --        144,769
Retirement of long-term debt                                   (144,769)          --           --            --       (144,769)
Net borrowings (repayments) under revolving
 line of credit and other                                        20,027      (16,386)      11,689            --         15,330
Deferred financing costs                                         (7,816)          --           --            --         (7,816)
Distributions to minority interests                                  --           --       (1,800)           --         (1,800)
                                                            ------------------------------------------------------------------
Net cash provided by (used in) financing activities              12,211      (16,386)       9,889            --          5,714
Effect of exchange rate changes on cash                              --           --        2,159            --          2,159
Cash flows of discontinued operation                                 --      (17,167)      (7,504)           --        (24,671)
                                                            ------------------------------------------------------------------
Net increase (decrease) in
 cash and cash equivalents                                            1          (29)     (10,944)           --        (10,972)
Cash and cash equivalents at beginning of year                       --          232       23,636            --         23,868
                                                            ------------------------------------------------------------------
Cash and cash equivalents at end of year                    $         1    $     203    $  12,692      $     --      $  12,896
                                                            ==================================================================
</TABLE>

__________
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.

                                       60

<PAGE>

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                            Condensed Consolidating Balance Sheet
                                                                                      December 31, 2001
                                                         -------------------------------------------------------------------------
                                                           Delco Remy
                                                          International                  Non-
                                                          Inc. (Parent    Subsidiary   Guarantor
                                                          Company Only)   Guarantors  Subsidiaries  Eliminations     Consolidated
                                                         ------------------------------------------------------------------------
<S>                                                      <C>             <C>          <C>           <C>           <C>
Assets:
Current assets:
   Cash and cash equivalents                               $       --      $     232    $  23,636    $       --        $  23,868
   Trade accounts receivable                                       --        131,033       24,371            --          155,404
   Other receivables                                               --          2,711        6,233            --            8,944
   Inventories                                                     --        239,540       46,406        (2,087)/(c)/    283,859
   Deferred income taxes                                       17,184             --        3,991            --           21,175
   Assets of discontinued operations                               --         15,664       25,770            --           41,434
   Other current assets                                         4,759          2,829        5,307            --           12,895
                                                           ---------------------------------------------------------------------
Total current assets                                           21,943        392,009      135,714        (2,087)         547,579
Property and equipment                                             57        201,673       92,852            --          294,582
Less accumulated depreciation                                      25         99,383       19,319            --          118,727
                                                           ---------------------------------------------------------------------
Property and equipment, net                                        32        102,290       73,533            --          175,855
Deferred financing costs                                       11,431          1,209           --            --           12,640
Goodwill, net                                                      --        160,034       20,154            --          180,188
Investment in affiliates                                      526,037             --           --      (514,893)/(a)/     11,144
Deferred income taxes                                          11,121             12         (657)           --           10,476
Other assets                                                    2,531          3,263        3,555            --            9,349
                                                           ---------------------------------------------------------------------
Total assets                                               $  573,095      $ 658,817    $ 232,299     $(516,980)       $ 947,231
                                                           =====================================================================
Liabilities and stockholders' equity:
Current liabilities:
   Accounts payable                                        $    1,304      $  96,739    $  30,738     $      --        $ 128,781
   Intercompany accounts                                      (59,672)        52,508        7,765          (601)/(c)/         --
   Accrued interest                                             9,927             --          173            --           10,100
   Accrued restructuring charges                                   --         26,595        1,349            --           27,944
   Liabilities of discontinued operations                          --          3,736        4,869            --            8,605
   Other liabilities and accrued expenses                       7,568         32,240       16,754            --           56,562
   Current debt                                                    --            804        5,967            --            6,771
                                                           ---------------------------------------------------------------------
Total current liabilities                                     (40,873)       212,622       67,615          (601)         238,763
Deferred income taxes                                              --             --           --            --               --
Long-term debt, less current portion                          548,683         34,580        9,915            --          593,178
Post-retirement benefits other than pensions                       --         25,812           --            --           25,812
Accrued pension benefits                                           --          9,035        1,181            --           10,216
Other non-current liabilities                                   1,842          4,089          724            --            6,655
Minority interest in subsidiaries                                  --         12,696       17,411            --           30,107
Redeemable preferred stock                                    244,699             --           --            --          244,699
Stockholders' equity:
   Preferred stock - Series A                                      --             --           --            --               --
   Common stock:
      Class A Shares                                               --             --           --            --               --
      Class B Shares                                                3             --           --            --                3
      Class C Shares                                               --             --           --            --               --
   Subsidiary investment                                           --        291,416       93,099      (384,515)/(a)/         --
   Retained earnings (deficit)                               (178,762)        71,302       60,562      (131,864)/(b)/   (178,762)
   Accumulated other comprehensive loss                        (2,497)        (2,735)     (18,208)           --          (23,440)
                                                           ---------------------------------------------------------------------
Total stockholders' equity (deficit)                         (181,256)       359,983      135,453      (516,379)        (202,199)
                                                           ---------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit)       $  573,095      $ 658,817    $ 232,299     $(516,980)       $ 947,231
                                                           =====================================================================
</TABLE>

______________
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.

                                       61

<PAGE>

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                     Condensed Consolidating Statement of Operations
                                                                          For the Year Ended December 31, 2001
                                                   -------------------------------------------------------------------------------
                                                    Delco Remy
                                                   International                       Non-
                                                   Inc. (Parent     Subsidiary       Guarantor
                                                   Company Only)    Guarantors     Subsidiaries   Eliminations       Consolidated
                                                   -------------------------------------------------------------------------------
<S>                                                 <C>            <C>             <C>             <C>               <C>
Net sales                                           $        --    $  1,045,914    $   391,241     $  (430,003)/(a)/ $ 1,007,152
Cost of goods sold                                           --         914,647        337,583        (430,003)/(a)/     822,227
Special charges - cost of goods sold                         --          16,236             --                            16,236
                                                    ------------------------------------------------------------------------------
Gross profit                                                 --         115,031         53,658              --           168,689
Selling, general and administrative expenses             14,502          61,891         22,773              --            99,166
Special charges - SG&A                                       --          16,206             --                            16,206
Amortization of goodwill and intangibles                     --           6,217            538              --             6,755
Restructuring charges                                        --          31,285          2,140              --            33,425
                                                    ------------------------------------------------------------------------------
Operating (loss) income                                 (14,502)           (568)        28,207              --            13,137
Interest expense, net                                   (42,822)        (12,746)          (989)             --           (56,557)
Non-recurring merger and
 tender offer expenses                                   (4,194)             --             --              --            (4,194)
Other non-operating income (expense)                       (900)            192          2,557              --             1,849
                                                    ------------------------------------------------------------------------------
Income (loss) from continuing operations
 before income taxes (benefit), minority
 interest in loss of subsidiaries, loss
 from unconsolidated joint ventures,
 equity in earnings of subsidiaries,
 and extraordinary items                                (62,418)        (13,122)        29,775              --           (45,765)
Income tax expense (benefit)                             (7,698)         (6,014)         3,629              --           (10,083)
Minority interest in loss of subsidiaries                    --          (4,072)        (5,182)             --            (9,254)
Loss from unconsolidated joint ventures                      --              --         (2,925)             --            (2,925)
Equity in earnings of subsidiaries                      (17,927)             --             --          17,927/(b)/           --
                                                    ------------------------------------------------------------------------------
Net income (loss) from continuing operations
 before extraordinary items                             (72,647)        (11,180)        18,039          17,927           (47,861)
Discontinued operations:
   Loss from discontinued operations                         --         (17,400)       (14,941)             --           (32,341)
   Income tax expense (benefit)                              --          (6,523)          (334)             --            (6,857)
                                                    ------------------------------------------------------------------------------
   Net loss from discontinued operations                     --         (10,877)       (14,607)             --           (25,484)
Extraordinary items:
   Gain on early extinguishment
    of debt, net of income tax                               --             698             --              --               698
                                                    ------------------------------------------------------------------------------
Net income (loss)                                       (72,647)        (21,359)         3,432          17,927           (72,647)

Redeemable preferred stock dividends                     20,971              --             --              --            20,971
                                                    ------------------------------------------------------------------------------
Income (loss) available to
 common stockholders                                $   (93,618)   $    (21,359)   $     3,432     $    17,927       $   (93,618)
                                                    ==============================================================================
</TABLE>

-----------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net loss from consolidated subsidiaries.

                                       62

<PAGE>

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                      Condensed Consolidating Statement of Cash Flows
                                                                           For the Year Ended December 31, 2001
                                                       ---------------------------------------------------------------------------
                                                       Delco Remy
                                                      International                       Non-
                                                      Inc. (Parent     Subsidiary       Guarantor
                                                      Company Only)    Guarantors     Subsidiaries   Eliminations    Consolidated
                                                      ----------------------------------------------------------------------------
<S>                                                    <C>            <C>             <C>            <C>             <C>
Operating Activities:
Net income (loss)                                      $   (72,647)   $   (21,359)    $     3,432    $   17,927/(a)/ $  (72,647)
Adjustments to reconcile net income (loss)
 to net cash provided by (used in)
 operating activities:
   Loss from discontinued operations                            --         10,877          14,607            --          25,484
   Extraordinary item                                           --           (698)             --            --            (698)
   Depreciation                                                  5         19,281           7,195            --          26,481
   Amortization                                                 --          6,217             538            --           6,755
   Minority interest in income of subsidiaries                  --          4,072           5,182            --           9,254
   Loss from unconsolidated joint ventures                      --             --           2,925            --           2,925
   Equity (loss) in earnings of subsidiaries                17,927             --              --       (17,927)             --
   Deferred income taxes                                   (25,944)          (326)           (430)           --         (26,700)
   Post retirement benefits other than pensions                 --          3,018              --            --           3,018
   Accrued pension benefits                                     --          5,284             508            --           5,792
   Non-cash interest expense                                 1,079            723              --            --           1,802
Changes in operating assets and liabilities,
 net of acquisitions:
   Accounts receivable                                          --         (9,415)         (5,811)           --         (15,226)
   Inventories                                                  --            (43)         (3,780)           --          (3,823)
   Accounts payable                                            339        (11,127)           (168)           --         (10,956)
   Intercompany accounts                                  (150,098)       135,247          14,851            --              --
   Other current assets and liabilities                      3,427         (3,593)           (980)           --          (1,146)
   Restructuring charges                                        --         31,285           2,140            --          33,425
   Cash payments for restructuring charges                      --         (7,798)          1,341            --          (6,457)
   Non-cash special charges                                     --         32,292             150            --          32,442
   Other non-current assets and liabilities, net            (4,727)        29,964         (19,157)           --           6,080
                                                      ---------------------------------------------------------------------------
Net cash provided by (used in) operating
 activities of continuing operations                      (230,639)       223,901          22,543            --          15,805
Investing Activities:
Acquisitions, net of cash acquired                         (17,116)        (8,856)         (2,916)           --         (28,888)
Purchases of property and equipment                            (37)       (13,519)         (6,455)           --         (20,011)
Investments in joint ventures                               (5,012)            --          (3,650)           --          (8,662)
                                                      ---------------------------------------------------------------------------
Net cash used in investing activities                      (22,165)       (22,375)        (13,021)           --         (57,561)
Financing Activities:
Proceeds from issuance of long-term debt                   157,291             --              --            --         157,291
Retirement of long-term debt                                    --        (17,790)             --            --         (17,790)
Net borrowings (repayments) under revolving
 line of credit and other                                  106,392       (165,448)         (5,422)           --         (64,478)
Deferred financing costs                                    (5,561)            --              --            --          (5,561)
Merger and tender offer costs                               (5,318)            --              --            --          (5,318)
Distributions to minority interests                             --             --            (762)           --            (762)
                                                      ---------------------------------------------------------------------------
Net cash provided by (used in) financing
 activities                                                252,804       (183,238)         (6,184)           --          63,382
Effect of exchange rate changes on cash                         --             --            (715)           --            (715)
Cash flows of discontinued operations                           --        (17,973)         (1,416)           --         (19,389)
                                                      ---------------------------------------------------------------------------
Net increase (decrease) in
 cash and cash equivalents                                      --            315           1,207            --           1,522
Cash and cash equivalents
 at beginning of year                                           --            (83)         22,429            --          22,346
                                                      ----------------------------------------------------------------------------
Cash and cash equivalents at end of year               $        --    $       232     $    23,636     $      --      $   23,868
                                                      ============================================================================
</TABLE>

-------------
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.

                                       63

<PAGE>

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                             Condensed Consolidating Statement of Operations
                                                               For the Five Months Ended December 31, 2000
                                                -------------------------------------------------------------------------------
                                                    Delco Remy
                                                   International                       Non-
                                                   Inc. (Parent     Subsidiary       Guarantor
                                                   Company Only)    Guarantors     Subsidiaries    Eliminations    Consolidated
                                                -------------------------------------------------------------------------------
<S>                                                 <C>            <C>             <C>             <C>               <C>
Net sales                                           $       --     $    450,259    $   155,028     $(183,087)/(a)/  $   422,200
Cost of goods sold                                          --          386,611        133,121      (183,087)/(a)/      336,645
                                                -------------------------------------------------------------------------------
Gross profit                                                --           63,648         21,907           --              85,555
Selling, general and administrative expenses              5,302          23,233         14,016           --              42,551
Amortization                                                 26           2,185            287           --               2,498
                                                -------------------------------------------------------------------------------
Operating (loss) income                                  (5,328)         38,230          7,604           --              40,506
Interest expense                                        (13,753)         (6,721)          (368)          --             (20,842)
Non-recurring merger/tender offer expenses               (1,124)            --             --            --              (1,124)
Non-operating expense (income)                              --              602            899           --               1,501
                                                -------------------------------------------------------------------------------
Income (loss) from continuing operations
  before income tax (benefit), minority
  interest in income of subsidiaries, income
  from unconsolidated joint ventures and
  equity in earnings of subsidiaries                    (20,205)         32,111          8,135           --              20,041
Income tax expense (benefit)                             (7,331)         12,625          1,166           --               6,460
Minority interest in income of subsidiaries                 --           (1,590)        (1,188)          --              (2,778)
Income from unconsolidated joint ventures                   --              --            (467)          --                (467)
Equity in earnings of subsidiaries                       22,573             --             --        (22,573)/(b)/           --
                                                -------------------------------------------------------------------------------
Income before extraordinary item                          9,699          17,896          5,314       (22,573)            10,336
Loss on discontinued operations                             --             (337)          (665)          --              (1,002)
Income tax benefit                                          --             (130)          (235)          --                (365)
                                                -------------------------------------------------------------------------------
Net loss on discontinued operations                         --             (207)          (430)          --                (637)
                                                -------------------------------------------------------------------------------
Net income                                          $     9,699    $     17,689    $     4,884     $ (22,573)       $     9,699
                                                ===============================================================================
</TABLE>


---------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.

                                       64

<PAGE>


                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                             Condensed Consolidating Statement of Cash Flows
                                                               For the Five Months Ended December 31, 2000
                                                 ----------------------------------------------------------------------------
                                                  Delco Remy
                                                 International                       Non-
                                                 Inc. (Parent      Subsidiary       Guarantor
                                                 Company Only)     Guarantors     Subsidiaries   Eliminations    Consolidated
                                                 ----------------------------------------------------------------------------
<S>                                              <C>              <C>             <C>            <C>             <C>
Operating Activities:
Net income                                       $       9,699    $     17,689    $      4,884   $    (22,573)   $      9,699
   Adjustments to reconcile net income (loss)
    to net cash provided by (used in)
    operating activities:
   Loss from discontinued operations                       --              207             430            --              637
   Depreciation                                            --            6,996           3,173            --           10,169
   Amortization                                             26           2,185             287            --            2,498
   Minority interest in income of subsidiaries             --            1,590           1,188            --            2,778
   Loss from unconsolidated joint ventures                 --              --              467            --              467
   Equity (loss) in earnings of subsidiaries           (22,573)            --              --          22,573             --
   Deferred income taxes                                 3,749             --           (2,097)           --            1,652
   Post retirement benefits other than pensions            --            1,155             --             --            1,155
   Accrued pension benefits                                --            3,089              49            --            3,138
   Non-cash interest expense                               455             285             --             --              740
Changes in operating assets and liabilities,
 net of acquisitions:
   Accounts receivable                                     --             (195)           (908)           --           (1,103)
   Inventories                                             --          (20,982)         (5,606)           --          (26,588)
   Accounts payable                                       (291)          4,465           9,648            --           13,822
   Intercompany accounts                                16,998         (25,808)          8,810            --              --
   Other current assets and liabilities                 (2,003)         (3,091)         (4,095)           --           (9,189)
   Cash payments for restructuring charges                 --          (10,884)         (4,249)           --          (15,133)
   Other non-current assets and liabilities, net        (6,060)         (3,030)          4,412            --           (4,678)
                                                 ----------------------------------------------------------------------------
Net cash provided by (used in) operating
 activities                                                --          (26,329)         16,393            --           (9,936)

Investing Activities:
Purchases of property and equipment                        --           (4,510)         (6,704)           --          (11,214)
Investments in joint ventures                              --              --           (1,892)           --           (1,892)
                                                 ----------------------------------------------------------------------------
Net cash used in investing activities                      --           (4,510)         (8,596)           --          (13,106)

Financing Activities:
Net borrowings (repayments) under revolving
 line of credit and other                                  --           34,278           1,264            --           35,542
Distributions to minority interests                        --              --             (322)           --             (322)
                                                 ----------------------------------------------------------------------------
Net cash provided by (used in) financing
 activities                                                --           34,278             942            --           35,220
Effect of exchange rate changes on cash                    --              --           (1,151)           --           (1,151)
Cash flows of discontinued operations                      --           (4,168)            878            --           (3,290)
                                                 ----------------------------------------------------------------------------
Net increase (decrease) in
 cash and cash equivalents                                 --             (729)          8,466            --            7,737
Cash and cash equivalents
 at beginning of year                                      --              646          13,963            --           14,609
                                                 ----------------------------------------------------------------------------
Cash and cash equivalents at end of year         $         --     $        (83)   $     22,429   $        --     $     22,346
                                                 ============================================================================
</TABLE>
_________________
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.

                                       65

<PAGE>

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                             Condensed Consolidating Statement of Operations
                                                                    For the Year Ended July 31, 2000
                                              ------------------------------------------------------------------------------
                                               Delco Remy
                                              International                       Non-
                                              Inc. (Parent     Subsidiary       Guarantor
                                              Company Only)    Guarantors     Subsidiaries   Eliminations       Consolidated
                                              ------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>            <C>                <C>
Net sales                                      $       --     $  1,087,187    $   330,429     $  (384,762)/(a)/   $1,032,854
Cost of goods sold                                     --          919,607        278,565        (384,762)/(a)/      813,410
                                              ------------------------------------------------------------------------------
Gross profit                                           --          167,580         51,864             --             219,444
Selling, general and administrative expenses        13,922          66,822         21,320             --             102,064
Amortization of goodwill and intangibles               108           5,033            676             --               5,817
Restructuring charges                                  --           30,133          1,233             --              31,366
                                              ------------------------------------------------------------------------------
Operating (loss) income                            (14,030)         65,592         28,635             --              80,197
Interest expense                                   (30,259)        (14,502)        (1,825)            --             (46,586)
Non-recurring merger/tender offer expenses             --              --             --              --                 --
Other non-operating income                             --              --             129             --                 129
                                              ------------------------------------------------------------------------------
Income (loss) from continuing operations
 before income tax (benefit), minority
 interest in income of subsidiaries, loss
 from unconsolidated joint ventures
 and equity in earnings of subsidiaries            (44,289)         51,090         26,939             --              33,740
Income tax expense (benefit)                       (13,966)         20,793          5,660             --              12,487
Minority interest in income of subsidiaries            --           (3,243)        (3,499)            --              (6,742)
Loss from unconsolidated joint ventures                --              --            (352)            --                (352)
Equity in earnings of subsidiaries                  42,741             --             --          (42,741)/(b)/          --
                                              ------------------------------------------------------------------------------
Income from continuing operations                   12,418          27,054         17,428         (42,741)            14,159
Discontinued operations:
   Loss from discontinued operations
    (including estimated loss on
    disposal of $33.5 million in the
    second quarter of 2002)                            --            1,076         (3,845)             --             (2,769)
   Income tax expense (benefit)                        --              392         (1,420)             --             (1,028)
                                              ------------------------------------------------------------------------------
   Net loss from discontinued operations               --              684         (2,425)             --             (1,741)
                                              ------------------------------------------------------------------------------
Net income                                     $    12,418    $     27,738    $    15,003     $   (42,741)        $   12,418
                                              ==============================================================================
</TABLE>

---------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.

                                       66

<PAGE>

                 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                             Condensed Consolidating Statement of Cash Flows
                                                                    For the Year Ended July 31, 2000
                                              -------------------------------------------------------------------------------
                                               Delco Remy
                                              International                       Non-
                                              Inc. (Parent     Subsidiary       Guarantor
                                              Company Only)    Guarantors     Subsidiaries    Eliminations       Consolidated
                                              -------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>             <C>                <C>
Operating Activities:
Net income (loss)                              $    12,418    $     27,738    $     15,003    $    (42,741)/(a)/ $     12,418
Adjustments to reconcile net income (loss)
 to net cash provided by (used in)
 operating activities:
Loss from discontinued operations                      --             (684)          2,425             --               1,741
Depreciation                                           --           18,458           6,540             --              24,998
Amortization                                           108           5,033             676             --               5,817
Minority interest in income of subsidiaries            --            3,243           3,499             --               6,742
Loss from unconsolidated joint ventures                --              --              352             --                 352
Equity (loss) in earnings of subsidiaries          (42,741)            --              --           42,741/(a)/           --
Deferred income taxes                                4,640               1            (866)            --               3,775
Post-retirement benefits other than pensions           --              589             --              --                 589
Accrued pension benefits                               --           (2,057)            624             --              (1,433)
Non-cash interest expense                            1,092             671             --              --               1,763
Changes in operating assets and liabilities,
 net of acquisitions:
Accounts receivable                                    --            1,125           1,258             --               2,383
Inventories                                            --          (10,624)         (3,626)            --             (14,250)
Accounts payable                                       620           8,828           2,203             --              11,651
Intercompany accounts                               75,521         (76,633)          1,112             --                 --
Other current assets and liabilities                 3,561         (13,705)         (4,316)            --             (14,460)
Restructuring charges                                  --           30,133           1,233             --              31,366
Cash payments for restructuring charges                --           (8,230)           (670)            --              (8,900)
Other non-current assets and liabilities, net        8,105         (20,044)         11,865             --                 (74)
                                              -------------------------------------------------------------------------------
Net cash provided by (used in) operating
 activities of continuing operations                63,324         (36,158)         37,312             --              64,478

Investing Activities:
Acquisitions, net of cash acquired                 (63,324)             30           1,133             --             (62,161)
Purchases of property and equipment                    --          (13,930)        (20,014)            --             (33,944)
Investments in joint ventures                          --              --           (1,179)            --              (1,179)
                                              -------------------------------------------------------------------------------
Net cash used in investing activities
 of continuing operations                          (63,324)        (13,900)        (20,060)            --             (97,284)

Financing Activities:
Net borrowing (repayments) under revolving
 line of credit and other                              --           48,058          (7,790)            --              40,268
Distributions to minority interests                    --              --           (1,200)            --              (1,200)
                                              -------------------------------------------------------------------------------
Net cash provided by (used in) financing
 activities of continuing operations                   --           48,058          (8,990)            --              39,068
Effect of exchange rate changes on cash                --              --             (637)            --                (637)
Cash flows of discontinued operations                  --            2,690          (8,408)            --              (5,718)
                                              -------------------------------------------------------------------------------
Net increase (decrease) in cash and
 cash equivalents                                      --              690            (783)            --                 (93)
Cash and cash equivalents
 at beginning of year                                  --              (44)         14,746             --              14,702
                                              -------------------------------------------------------------------------------
Cash and cash equivalents at end of year       $       --     $        646    $     13,963     $       --        $     14,609
                                              ===============================================================================
</TABLE>

-----------------
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement subsidiary.

                                       67

<PAGE>

19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

RESTATED

<TABLE>
<CAPTION>
Quarter Ended:                                          3/31/02       6/30/02       9/30/02       12/31/02      Total Year
                                                       ---------------------------------------------------------------------
<S>                                                    <C>           <C>            <C>           <C>           <C>
Net sales                                              $ 258,651     $ 282,482      $ 268,453     $ 259,766     $  1,069,352
Gross profit                                              49,619        49,031         45,601        34,840          179,091
Income (loss) from continuing operations
 before extraordinary items and cumulative
 effect of change in accounting principle                  4,139         3,016            942        (7,518)             579
Net loss                                                 (73,275)      (27,584)       (14,547)      (17,130)        (132,536)

Loss from discontinued operations                         (3,238)       (6,558)       (11,950)       (7,837)         (29,583)
Loss on disposal of discontinued operation                    --       (22,933)        (3,539)       (1,776)         (28,248)
Extraordinary items                                           --        (1,108)            --            --           (1,108)
Cumulative effect of change in accounting principle      (74,176)           --             --            --          (74,176)

As Initially Reported:                                  3/31/02        6/30/02
                                                       -----------------------
Net sales                                              $ 263,804     $ 282,482
Gross profit                                              47,172        49,031
Income (loss) from continuing operations
 before extraordinary items and cumulative
 effect of change in accounting principle                    902         3,016
Net loss                                                     902       (34,585)

Loss from discontiued operations                              --        (6,558)
Loss on disposal of discontinued operations                   --       (29,935)
</TABLE>

     The Company restated the income statement for the first quarter of 2002 for
the classification of the Company's gas engine business as a discontinued
operation effective in the second quarter and to record the $74,176 charge
relative to the adoption of SFAS 142. The second quarter of 2002 was restated to
reclassify the write-down of goodwill initially included in the loss on the
disposal of the gas engine business to the SFAS 142 charge recorded in the first
quarter.

<TABLE>
<CAPTION>
Quarter Ended:                                          3/31/01       6/30/01        9/30/01       12/31/01      Total Year
                                                       ---------------------------------------------------------------------
<S>                                                    <C>           <C>            <C>           <C>           <C>
Net sales                                              $ 245,640     $ 255,557      $ 259,166     $ 246,789     $  1,007,152
Gross profit                                              41,133        48,762         47,469        31,325          168,689
Income (loss) from continuing operations
 before extraordinary items                               (4,123)        4,079            305       (48,122)         (47,861)
Net income (loss)                                         (5,830)        3,942         (3,014)      (67,745)         (72,647)

Restructuring and special charges                          2,098         2,184          1,785        59,800           65,867
Loss from discontinued operations                         (1,707)         (835)        (3,319)      (19,623)         (25,484)
Extraordinary items                                           --           698             --            --              698
</TABLE>

20. RELATED PARTY TRANSACTIONS

     In 2002 the Company entered into to an advisory agreement with CVC
Management LLC (the "Advisor"), an affiliate of Court Square and CVC Equity
Partners. Under the terms of the agreement, the Advisor is required to provide
executive, management, consulting and support services to the Company and
certain of its subsidiaries. The Advisor is entitled to receive an initial
advisory fee of $1 million for 2002 and an advisory fee of $1 million for each
year thereafter, payable in equal quarterly installments. The advisory agreement
continues until December 31, 2006 and is automatically renewed from year to year
thereafter unless terminated by either of the parties. The Advisor is also
entitled to receive a transaction fee of $2.5 million for services provided in
connection with the refinancing of the Company's senior credit facilities in
2002 and may receive additional transaction fees under the advisory agreement in
amounts to be agreed upon by the parties for services provided in connection
with future financings, acquisitions and divestitures. The Advisor has agreed to
defer payment of the initial $3.5 million payable under the agreement until June
27, 2003.

                                       68

<PAGE>

21. SUBSEQUENT EVENTS

     (a) Anderson Plant Closures On January 7, 2003, the Company announced that
         it will close its Delco Remy America starter and alternator
         manufacturing operations in Anderson, Indiana during the first quarter
         of 2003. Production at these plants will be absorbed by other Company
         plants globally. The wind down of the Anderson manufacturing operations
         will affect approximately 350 hourly UAW represented employees and
         approximately 50 salaried employees currently supporting these plants.

     (b) Divestiture of Non-Core Businesses On March 7, 2003 and on March 19,
         2003 the Company successfully completed the sale of two non-core
         businesses that were engaged in the manufacturing of traction control
         devices and components for the air-conditioning industry. The net
         proceeds of the sales were approximately $29,000. These non-core
         businesses will be treated as discontinued operations beginning in the
         first quarter of 2003. The sale of these non-core businesses is not
         expected to have a material effect on the Company's results of
         operations.

     (c) NABCO Plant Closure On March 18, 2003, the Company announced it would
         close, by year-end, its electrical remanufacturing business, NABCO,
         located in Reed City, Michigan. The wind down of the Reed City
         remanufacturing operations will affect approximately 200 employees. The
         NABCO facilities in Kaleva and Marion, Michigan, will continue to
         remanufacture components for Delphi and other selected customers.

     (d) Acquisition of Hubei Joint Venture In March 2003, the Company
         substantially completed the acquisition of 51% of Hubei Delphi
         Automotive Generators Company, Ltd. ("Hubei"), a manufacturer of OE
         automotive generators based in China. The purchase price was
         approximately $3.6 million. Completion of the acquisition is subject to
         receiving final approval of the Chinese government. This acquisition
         will be accounted for as a purchase and the results of Hubei will be
         included in the Company's financial statements as of the acquisition
         date.

ITEM 9     DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with the independent accountants.

                                       69

<PAGE>

                                    PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Harold K. Sperlich, Chairman of the Board of Directors. Mr. Sperlich has
been Chairman of the Board of Directors since the Company's inception in 1994.
Since retiring from Chrysler Corporation in 1988, having served as its
President, Mr. Sperlich has served as a consultant to the automotive industry.
Before joining Chrysler in 1977, Mr. Sperlich held several senior administrative
and operating posts with Ford Motor Company. Age: 73

     Thomas J. Snyder, President, Chief Executive Officer and Director. Mr.
Snyder was elected Chief Executive Officer effective January 1, 2000. He was
elected President, Chief Operating Officer and Director when the Company was
founded in 1994. From 1973 to 1994, he held a variety of managerial and
executive positions with the Delco Remy Division of GM. He is a member of the
Board of the Indiana Chamber of Commerce and of Saint John's Health Systems. He
is a member of the Board of Visitors of Hudson Institute and of Indiana
University's Kelley School of Business in Indianapolis. Age: 58

     E.H. Billig, Vice Chairman of the Board of Directors. Mr. Billig has been
Vice Chairman of the Board of Directors since the Company's inception in 1994.
Mr. Billig has been Chairman of the Board of MSX International, Inc. since 1997,
where he was also Chief Executive Officer until January 2000. He was formerly
President and Chief Operating Officer of MascoTech, Inc. He is also a director
of Titan Wheel International, Inc. Age: 76

     Richard M. Cashin, Jr., Director. Mr. Cashin has been a director since the
Company's inception in 1994. Mr. Cashin was President from 1994 to April 2000
and a Managing Director for more than five years of Citicorp Venture Capital
Ltd., ("CVC"). From April 2000 to April 2001, he was a partner of Cashin Capital
Partners, a private equity investment firm. Since April 2001, he has been the
Chairman of One Equity Partners, the private equity arm of Bank One. In
addition, Mr. Cashin serves as a director of Fairchild Semiconductor Corporation
and Titan Wheel International, Inc. Age: 49

     Alexander P. Coleman, Director. Mr. Coleman has been a director since 2001.
Mr. Coleman is a Managing Investment Partner of Dresdner Kleinwort Benson
Private Equity LLC, Dresdner Bank A.G.'s U.S. private equity arm, and a Managing
Director of Dresdner Kleinwort Wasserstein. Mr. Coleman joined Dresdner
Kleinwort Benson in January 1996. Mr. Coleman is a director of KMC Telecom, Inc.
and Gardenburger, Inc. Age: 36

     Michael A. Delaney, Director. Mr. Delaney has been a director since the
Company's inception in 1994. Mr. Delaney has been a Managing Director of CVC
since 1995 and a Vice President for the past six years. Mr. Delaney is Vice
President and Managing Director of Court Square. He is also a director of JAC
Holdings, Inc., MSX International, Inc., Great Lakes Dredge and Dock
Corporation, ChipPac Inc. and Erico Corporation. Age: 48

     James R. Gerrity, Director. Mr. Gerrity has been a director since the
Company's inception in 1994. From 1986 to 1993, Mr. Gerrity was President and a
director of Dyneer Corporation. Mr. Gerrity currently is a director of Wescor
Graphics, Inc., Ballantrae Corporation, Inc., Palomar Technologies, Inc. and
Flender AG. Age: 61

     Robert J. Schultz, Director. Mr. Schultz became a director in 1997. Mr.
Schultz retired as Vice Chairman and a member of the Board of Directors of GM in
1993. Mr. Schultz joined GM in 1955 and served as General Manger of GM's Delco
Electronics Division and Group Executive of Chevrolet-Pontiac-GM of Canada. Mr.
Schultz is also Chairman of the Board of Advanced Electron Beams, Inc., a
director of MCT Corporation, and was Chairman of the Board of OEA, Inc. until
its sale earlier last year. He is also a member of the Board of Trustees of
California Institute of Technology. Age: 72

     Joseph M. Silvestri, Director. Mr. Silvestri has been a director since
2001. Mr. Silvestri has been a Vice President of CVC since 1990. Mr. Silvestri
is also Vice President of Court Square. Moreover, Mr. Silvestri is also a
director of Triumph Group, Euramax International, and MacDermid. Age: 41

     Rajesh K. Shah, Executive Vice President, Chief Financial Officer. Mr. Shah
has been the Chief Financial Officer of the Company since March 2002. Prior to
joining the Company, Mr. Shah was the Chief Financial Officer and Executive Vice
President of Finance for Collins & Aikman Corp. since 1999, and prior to that he
served as Vice President of Finance for United Technologies Automotive Division
since 1994. Age: 51

                                       70

<PAGE>

     Roderick English, Senior Vice President, Human Resources and
Communications. Mr. English has been Senior Vice President of Human Resources
and Communications since November 1997. Prior to that Mr. English had been
Senior Vice President of Human Resources and Communications at Delco Remy
America since the Company's inception in 1994. Mr. English joined the Delco Remy
Division of GM in 1976 and became Plant Manager of plant 17 in 1992. Prior to
that, Mr. English served as Divisional Manager of Labor Relations since 1989.
Age: 51

     Richard L. Keister, President, Aftermarket. Mr. Keister has been President
of Aftermarket since October 2001. Prior to that, Mr. Keister was President of
the Electrical Aftermarket Division since 1997. Prior to 1997, he was President
of World Wide Automotive, which was founded by Mr. Keister in 1976 and acquired
by the Company in 1997. Age: 57

     David E. Stoll, Vice President, Treasurer and Secretary. Mr. Stoll was Vice
President, Controller and Secretary since the Company's inception in 1994.
During fiscal year 2000, he was elected to the position of treasurer. Prior to
joining the Company, he was Vice President of Finance and Administration of
Dyneer Corporation since 1987 and, prior to that, served as Corporate Controller
since 1973. Age: 60

     Allen R. Wilkie, Vice President and Operations Controller. Mr. Wilkie has
been Vice President and Operations Controller since June 2000 and Operations
Controller since March 1996. Prior to that, Mr. Wilkie served as Vice President,
Controller of Ameron International, Inc. from March 1994 through March 1996.
Age: 52

     Patrick C. Mobouck, Vice President-Managing Director, Europe. Mr. Mobouck
has been Vice President-Managing Director, Europe since July 1997. He has also
been Chairman of Autovill since August 1997. Before joining the Company, Mr.
Mobouck was with Monroe Auto Equipment since 1987, most recently as Managing
Director-Europe, Middle East and Africa. Age: 48

     Richard L. Stanley, President, Delco Remy America. Mr. Stanley has been
President of Delco Remy America since November 1998. Prior to that, Mr. Stanley
had been Senior Vice President, Automotive Systems since the Company's inception
in 1994. Mr. Stanley joined the Delco Remy Division of GM in 1978, serving most
recently as Director of Customer Programs since 1992 and as European Chief
Engineer since 1988. Age 46


ITEM 11  EXECUTIVE COMPENSATION

Executive Compensation

     The following table sets forth, for the years ending December 31, 2002 and
2001, the five-month transition period ending December 31, 2000 and the year
ending July 31, 2000, the information regarding the cash compensation paid by
the Company, as well as other compensation paid or accrued for that period, to
each of the executive officers of the Company named below, in all capacities in
which they served.

                                       71

<PAGE>

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                     Long Term
                                                                                  Compensation/(1)/
                                                               Annual            -------------------
                                                            Compensation            Securities
                                                    ----------------------------
                                                                                    Underlying            All Other
Name and Principal Position           Year           Salary($)         Bonus($)     Options(#)         Compensation($)
----------------------------------------------------------------------------------------------------------------------
                                                       (dollars in thousands)
<S>                                   <C>           <C>                <C>       <C>                   <C>
Thomas J. Snyder                      2002             481.2             97.9             --                20.7/(3)/
 President and Chief                  2001             425.0            268.3             --                21.2/(3)/
 Executive Officer                    2000/(2)/        158.3            244.7         52,100                 5.5/(3)/
                                      2000             350.0            387.3          7,000                17.3/(3)/

Rajesh K. Shah                        2002             336.4            231.3             --                 1.8/(4)/
 Executive Vice President and         2001                --               --             --                  --
 Chief Financial Officer              2000/(2)/           --               --             --                  --
                                      2000                --               --             --                  --

Richard L. Keister                    2002             291.5             34.2             --                 8.2/(5)/
 President, Aftermarket               2001             260.0            182.0             --                10.0/(5)/
                                      2000/(2)/        101.6             97.3             --                 2.1/(5)/
                                      2000             230.3             99.5          3,500                 8.6/(5)/

Richard L. Stanley                    2002             306.2             34.2             --                10.3/(6)/
 President, Delco Remy                2001             291.5            110.5             --                10.2/(6)/
 America                              2000/(2)/        117.3            143.4         17,550                 1.2/(6)/
                                      2000             275.0            218.6          5,000                11.2/(6)/

Roderick English                      2002             271.7             30.8             --                11.4/(7)/
 Senior Vice President,               2001             262.5             99.6             --                10.4/(7)/
 Human Resources and                  2000/(2)/        105.0            106.6         12,500                 1.7/(7)/
 Communications                       2000             237.7            161.8          5,000                 9.9/(7)/
</TABLE>

    (1) All options held by the executive officers and directors listed in this
        table were subsequently cancelled on March 14, 2001. See the Section
        below entitled "Stock Options" for more information.

    (2) For the five-month transition period ending December 31, 2000.

    (3) Includes the following: (i) $8,500, $9,437 and $7,778 in matching
        contributions under the Company's 401(k) Plan in fiscal years 2002, 2001
        and 2000, respectively; and (ii) $12,166, $11,785, $5,512 and $9,542 in
        premiums paid under a life insurance policy in fiscal years 2002 and
        2001, the five-month transition period ending December 31, 2000 and the
        fiscal year 2000, respectively.

    (4) Includes the following: (i) $1,840 in premiums paid under a life
        insurance policy in fiscal year 2002.

    (5) Includes the following: (i) $6,364, $4,658 and $3,615 in matching
        contributions under the Company's 401(k) Plan in fiscal years 2002, 2001
        and 2000, respectively; (ii) $1,834, $1,995, $523 and $1,203 in premiums
        paid under a life insurance policy in fiscal years 2002 and 2001,
        the five-month period ending December 31, 2000 and fiscal year 2000,
        respectively; and (iii) $3,517, $1,315 and $3,157 in premiums paid under
        a disability insurance policy in fiscal year 2001, the five-month period
        ending December 31, 2000 and fiscal year 2000, respectively.

    (6) Includes the following: (i) $8,000, $8,429 and $9,216 in matching
        contributions under the Company's 401(k) Plan in fiscal years 2002, 2001
        and 2000, respectively; and (ii) $2,262, $1,177, $1,178 and $1,958 in
        premiums paid under a life insurance policy in fiscal years 2002 and
        2001, the five-month transition period ending December 31, 2000 and
        fiscal year 2000, respectively.

    (7) Includes the following: (i) $7,685, $7,027 and $7,007 in matching
        contributions under the Company's 401(k) Plan in fiscal years 2002, 2001
        and 2000, respectively; and (ii) $3,752, $3,371, $1,654 and $2,925 in
        premiums paid under a life insurance policy in fiscal years 2002 and
        2001, the five-month period ending December 31, 2000 and the fiscal year
        2000, respectively.

                                       72

<PAGE>

Stock Options

     In conjunction with the going private transaction and the merger that
followed, all previously existing stock options held by executive officers and
directors of the Company were cancelled and both the Company's 1997 Stock-Based
Incentive Compensation Plan and the Company's 1997 Non-Qualified Stock Option
Plan for Non-Employee Directors were terminated. Furthermore, no options were
exercised during the period from August 1, 2000 to the date of the merger. There
are currently no options outstanding to purchase securities of the Company. See
Item 13, "Certain Relationships and Related Transactions", for a description of
other agreements entered into between the Company and its executive officers and
directors as a result of the going private transaction and the merger.

Retirement Plans

     Delco Remy America, Inc., a wholly owned subsidiary of the Company,
established the Delco Remy America Salaried Retirement Plan (the "Retirement
Plan") primarily to provide eligible salaried employees with a monthly pension
benefit after retirement for life. As of December 31, 2002, the named executive
officers of the Company have been credited with the following amounts of service
under the Retirement Plan: Thomas J. Snyder - 40.4 years; and Richard L. Stanley
- 24.8 years.

Change of Control Agreements

     The Company executed change of control agreements with the following
executive officers: Mr. Snyder, Mr. Shah, Mr. Stanley, Mr. English and Mr.
Mobouck. These agreements entitle each of the eligible executive officers to
receive payments and benefits upon the occurrence of a change of control of the
Company followed by termination of the executive's employment within the two
years immediately following the change of control under specified circumstances.
In case of Mr. Snyder, the total payment will be equal to $2.7 million, and he
will be entitled to receive continuation of medical, dental and life insurance
benefits until his sixty-fifth birthday. Each eligible executive officer other
than Mr. Snyder will receive a payment of $1.0 million (or if the termination
occurs after the first two years following execution of the change of control
agreements, his or her average compensation in the three full calendar years
immediately preceding the termination of employment) and continuation of
medical, dental and life insurance benefits for a period of one year after the
termination of employment with the Company.

     Payments and other benefits received by Mr. Snyder will be subject to
gross-up tax treatment so that the Company will compensate Mr. Snyder for any
excise taxes applicable to payments and other benefits, including the gross-up
payment, received by him upon a change of control. Payments and other benefits
received by the other eligible executives will be subject to cut-back treatment
so that any payments or other benefits to be received by any of them will be
reduced to a level which eliminates any excise taxes. Under some circumstances,
the present value of the payments and other benefits to be provided to the
executives in connection with a change of control will not be deductible by the
Company.

Amendments to Benefit Plans

     As a condition to the execution of the change of control agreements, the
Company required the applicable executive officers to agree to amendments to the
Company's benefit plans. The Company amended the definition of "Change in
Control" in the Delco Remy International, Inc. Supplemental Executive Retirement
Plan (the "Executive Retirement Plan") to conform to the definition contained in
the change of control agreements. In addition, the Company amended the Executive
Retirement Plan to provide that, upon a change in control, the Company will not
be required to place any funds in trust unless the board of directors determines
in good faith that the change in control or any related or contemplated
financing transaction will impair in any material respect the financial
condition or creditworthiness of the Company or any other surviving successor or
entity. The Company further amended the Executive Retirement Plan to remove the
provision providing for accelerated vesting of benefits upon a change in
control. All affected persons consented to the amendments.

                                       73

<PAGE>

Split-Dollar Insurance Agreements

     The Company entered into Collateral Assignment Split-Dollar Insurance
Agreements, effective as of August 1, 2000, with certain key management
employees. The employees own the life insurance policies. However, they have
assigned the policies to the Company as security for the repayment of premiums
paid by the Company. The Company's interest in the cash value of the policy is
equal to the premium paid by the Company, and the employees have a remaining
interest in the cash value. If an employee dies while the collateral assignment
is in place, the Company has a right to receive a portion of the death benefit
equal to the amount of the premiums previously paid by the Company, with any
excess payable to designated beneficiaries of the employee. Under the
agreements, the employee is provided with life insurance protection under a
universal life insurance product (the "Policy"). The collateral assignment will
terminate on the first to occur of the following events:

     .    total cessation of the business of the Company;

     .    bankruptcy, receivership or dissolution of the Company;

     .    surrender or cancellation of the Policy by the employee;

     .    employee entering into Competition (as defined by the agreements) with
          the Company or an affiliated Employer;

     .    the delivery by the employee of a written notice terminating the
          agreement;

     .    death of the employee;

     .    termination of the employee's employment with the Company for Cause
          (as defined by the agreements); or

     .    as of the date the employee turns 65 (a "Termination Event").

     Upon the occurrence of any of these events other than death of an employee,
the employee has an option to tender an amount equal to the amount of the
premiums paid by the Company under the agreements, and upon receipt of the
repayment the Company will release the assignment of the Policy by the employee.
Messrs. Snyder, English and Stanley are parties to the agreements.

     As a condition to execution of the change of control agreements, the
Company required the applicable executives to agree to amend the agreements to
conform the definition of Change in Control to the definition included in the
Change of Control Agreements. The Company also amended the agreements to provide
that the Company's obligations to place substantial sums in trust for the
benefit of the beneficiaries in connection with a Change in Control will be
triggered only if the Board of Directors of the Company determines in good faith
that the Change in Control or any related or contemplated financing transaction
will impair in any material respect the financial condition or creditworthiness
of the Company or any other surviving or successor entity.

Employment Agreement

     The Company entered into an employment agreement with Mr. Snyder which
provides for his employment until July 2003. Mr. Snyder's agreement
automatically extended through July 2003 and will continue to automatically
extend for successive additional 12-month periods after July 2003 until notice
by either the Company or Mr. Snyder. Mr. Snyder receives an annual base salary
of $481,200, subject to merit increases as determined by the Board of Directors,
plus annual performance bonuses as determined by the Board of Directors. The
agreement provides that Mr. Snyder may not engage in any business competitive
with the Company while employed by the Company and for a period of one year
thereafter.

Separation Agreement

     The Company executed a separation agreement with Mr. Shah. If the Company
terminates Mr. Shah's employment other than for cause or Mr. Shah terminates his
employment for good reason, Mr. Shah is entitled to receive from the Company his
accrued salary to the date of termination, his accrued pro-rata bonus to the
date of termination, reimbursement for relocation expenses, twelve months of
executive outplacement services, and, for eighteen months after the date of
termination, his base salary at the date of termination, a bonus equal to 60% of
his salary at the date of termination, and continued medical, dental and vision
benefits.

                                       74

<PAGE>

Director Compensation

     Mr. Sperlich received $335,067 in directors fees during 2002 for services
related to special projects (in connection with acquisitions and strategic
alliances) undertaken by him at the direction of the Board of Directors in their
capacity as Directors.

     Mr. Gerrity received $233,867 in directors fees during 2002 for services
related to special projects (in connection with acquisitions and strategic
alliances) undertaken by him at the direction of the Board of Directors in their
capacity as Directors.

     During 2002, Mr. Billig, Mr. Cashin, and Mr. Schultz each received an
annual fee of $40,000, and Mr. Billig, Mr. Cashin and Mr. Schultz each received
a fee of $1,200 for each Board of Directors meeting attended and $1,000 for each
meeting of a committee of the Board of Directors attended.


ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     In connection with the going private transaction and the merger that
followed, the Company adopted its Amended and Restated Certificate of
Incorporation, which is attached hereto as Exhibit 3.1 and the terms of which
are incorporated herein by reference. The Company recapitalized its capital
stock into three classes of common stock, Class A, Class B and Class C, and one
class of preferred stock.

     The Amended and Restated Certificate of Incorporation provides that the
Company may issue 3,500,000 shares of preferred stock, all of which has been
designated as 12% Series A Cumulative Compounding Preferred Stock. Since
September 15, 2001, the preferred stock has been entitled to semi-annual
dividends each September 15th and March 15th, which accrue at a rate of 12%. As
of the date hereof, 2,237,257.23 shares of the Company's preferred stock were
outstanding. The vote of a majority of the outstanding shares of the preferred
stock is required to authorize or issue any other class or series of stock
entitled to any preferences prior to the preferred stock or to amend the Amended
and Restated Certificate of Incorporation if the amendment would adversely
affect the rights and preferences of the holders of the preferred stock. Except
as described in the immediately preceding sentence or as otherwise required by
law, the preferred stock is not entitled to vote.

     The Amended and Restated Certificate of Incorporation provides that the
Company may issue 12,001,000 shares of common stock, divided into three classes
consisting of one thousand shares of Class A Common Stock, 6 million shares of
Class B Common Stock, and 6 million shares of Class C Common Stock. As of the
date hereof, 1,000 shares of Class A Common Stock, 2,485,337.49 shares of Class
B Common Stock and 16,687 shares of Class C Common Stock were issued and
outstanding.

     The following table sets forth as of March 15, 2003 the number and
percentage of shares of each class of common stock and preferred stock
beneficially owned by (i) each person or group that is known to the Company to
be the beneficial owner of more than 5% of each class of Capital stock, (ii)
each director and named executive officer of the Company and (iii) all directors
and executive officers of the Company as a group.

                                       75

<PAGE>

<TABLE>
<CAPTION>
                                                               Number and Percent of Shares
                              --------------------------------------------------------------------------------------------------
                                       Preferred Stock       Class A Stock /(1)/       Class B Stock /(1)/     Class C Stock /(1)/
Name of Beneficial Owner             Number      Percent      Number   Percent        Number      Percent      Number     Percent
--------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>         <C>         <C>       <C>                <C>     <C>         <C>
Citicorp Venture Capital /(2)/
 Equity Partners, L.P.
 399 Park Avenue
 New York, New York 10043         1,620,406.51   72.43%          --       --               --         --      16,687.00      100%

Harney Investment Trust
 c/o Berkshire Hathaway Inc.
 1440 Kiewit Plaza
 Omaha, Nebraska 68131              460,404.96   20.58%          --       --       498,098.94      20.04%            --       --

Court Square Capital Limited /(3)/
 399 Park Avenue
 New York, New York 10043                   --      --        1,000      100%              --         --             --       --

Harold K. Sperlich                          --      --           --       --               --         --             --       --

Thomas J. Snyder /(4)/                9,174.56    0.41%          --       --        51,425.69       2.07%            --       --

Rajesh K. Shah                              --      --           --       --               --         --             --       --

Roderick English                      2,618.84    0.12%          --       --        14,833.25       0.60%            --       --

Richard L. Keister                          --      --           --       --               --         --             --       --

Patrick C. Mobouck                      327.36    0.01%          --       --        13,354.16       0.54%            --       --

Richard Stanley                       5,728.72    0.26%          --       --        19,697.73       0.79%            --       --

E.H. Billig                                 --      --           --       --               --         --             --       --

Richard M. Cashin, Jr.                8,614.61    0.39%          --       --         9,319.90       0.37%            --       --

Alexander P. Coleman                        --      --           --       --               --         --             --       --

Michael A. Delaney                          --      --           --       --               --         --             --       --

James R. Gerrity /(5)/                4,307.30    0.19%          --       --         4,659.94       0.19%            --       --

Robert J. Schultz                           --      --           --       --               --         --             --       --

Joseph M. Silvestri                         --      --           --       --               --         --             --       --

All directors and executive
 officers as a group (13 persons)    35,535.26    1.59%          --       --       121,044.58       4.87%            --       --
</TABLE>

    --------------
    (1) The original holders of the voting Class A Common Stock are entitled to
        a number of votes equal to 51% of the total number of votes entitled to
        be cast by the holders collectively owning all of the Class A Common
        Stock and the Class B Common Stock. The holders of Class B Common Stock
        are entitled to one vote for each share held of record on all matters
        submitted to a vote of the stockholders. Except as required by law, the
        holders of Class C Common Stock have no voting rights. The Class A
        Common is convertible into an equal number of shares of Class B Common
        Stock, the Class B Common Stock is convertible into an equal number of
        shares of Class C Common Stock and the Class C Common Stock is
        convertible into an equal number of shares of Class B Common Stock.

    (2) Citicorp Venture Capital Equity Partners, L.P. ("CVC Equity Partners")
        is a Delaware limited partnership managed by CVC Management LLC, a
        Delaware limited liability company. Citicorp Partners LLC, a Delaware
        limited liability company ("Citicorp Partners"), is the general manager
        of CVC Equity Partners. Citicorp Partners is owned 35% by Citigroup
        Venture Capital GP Holdings Ltd., a Delaware limited partnership ("CVC
        GP"), and 65% by certain investment professionals employed by Citigroup
        Inc., a Delaware corporation ("Citigroup"). Court Square owns all of the
        outstanding equity interests of CVC GP.

    (3) Court Square is a Delaware corporation principally engaged in the
        business of making leveraged acquisitions. Court Square is owned by
        Citicorp Banking Corporation, a Delaware corporation ("Citicorp
        Banking"). Citicorp, a Delaware corporation, owns all of the outstanding
        capital stock of Citicorp Banking. Citigroup Holdings Company, a
        Delaware corporation, owns all of the outstanding common stock of
        Citicorp. Citigroup owns all the outstanding common stock of Citigroup
        Holdings Company.

    (4) Includes 1,292.19 shares of preferred stock and 14,397.98 shares of
        Class B Common Stock held by Daisy Farm Limited Partnership of which Mr.
        Snyder is the general partner.

    (5) Includes 4,194 shares of Class B Common Stock and 3,876.57 shares of
        preferred stock and 466 shares of Class B Common Stock and 430.73 shares
        of preferred stock held by The James R. Gerrity Living Trust and The
        Susan Gerrity Living Trust, respectively.

                                       76

<PAGE>

ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In connection with the going private transaction and the merger that
followed, the Company executed the Securities Transfer, Recapitalization and
Holders Agreement (the "Securities Holders Agreement") with DRI Acquisition
Corporation, Court Square, DRI Group, World Equity Partners, L.P., Thomas J.
Snyder, J. Timothy Gargaro, Joseph P. Felicelli, Richard L. and Sandra Stanley,
Susan E. Goldy, Roderick English, Patrick C. Mobouck, Richard Keister, Daisy
Farm Limited Partnership, the James R. Gerrity Living Trust dated March 6, 1990
and the Susan Gerrity Living Trust dated March 6, 1990. The Securities Holders
Agreement is attached hereto as Exhibit 10.8 and the terms of the Securities
Holders Agreement are incorporated herein by reference. In the descriptions of
the Securities Holders Agreement, Preferred Stockholders Agreement and
Registration Rights Agreement that follow, each of the parties, other than the
Company, are sometimes referred to as the "Company's stockholders."

     According to the Securities Holders Agreement, so long as Court Square and
its permitted transferees owns at least 5% of the common stock outstanding,
Court Square has the right to designate observers to attend meetings of the
Board of Directors of the Company. The Securities Holders Agreement contains
provisions which, with certain exceptions, restrict the ability of the Company's
stockholders to transfer any of the common stock or preferred stock. If holders
of at least 50% of the Company's common stock approve the sale of the Company,
each Company stockholder has agreed to consent to the sale and, if the sale
includes the sale of stock, each Company stockholder has agreed to sell all of
such stockholder's common stock on the terms and conditions approved by holders
of a majority of the common stock then outstanding. Subject to some limitations,
certain of the Company's shareholders may not sell any of their shares of common
stock without offering the other Company stockholders a pro rata opportunity to
participate in such sale.

     The Securities Holders Agreement also provides for certain additional
restrictions on transfer of shares by the Company's stockholders, including the
Company's right to repurchase certain shares from those stockholders employed by
the Company, upon termination of such person's employment prior to 2006 at a
formula price, and the grant of a right of first refusal in favor of the Company
in the event such person elects to transfer its shares of common stock.

     The Company's stockholders also entered into a Preferred Stockholders
Agreement (the "Preferred Stockholders Agreement") containing certain additional
agreements among the Company's stockholders regarding the Company's preferred
stock. Subject to some limitations, certain of the Company's shareholders may
not sell any of their shares of preferred stock without offering the Company's
stockholders a pro rata opportunity to participate in such sale. If holders of
at least 50% of the common stock approve the sale of the Company, each Company
stockholder has agreed to consent to the sale and, if the sale includes the sale
of stock, each Company stockholder has agreed to sell all of such Company
stockholder's preferred stock on the terms and conditions approved by holders of
a majority of the Company's common stock then outstanding. The Preferred
Stockholders Agreement is attached hereto as Exhibit 10.21 and the terms of the
Preferred Stockholders Agreement are incorporated herein by reference.

     In connection with the foregoing, the Company and the Company's
stockholders also entered into a Registration Rights Agreement. According to the
Registration Rights Agreement, upon the written request of Court Square, or
certain of its permitted transferees, the Company will prepare and file a
registration statement with the Securities and Exchange Commission concerning
the distribution of all or part of the shares held by such party and use its
best efforts to cause such registration statement to become
effective. If at any time the Company files a registration statement for common
stock pursuant to a request by Court Square or otherwise, the Company will allow
the other parties to the Registration Rights Agreement to have their shares of
common stock (or a portion of their shares under certain circumstances) included
in the registered offering of the common stock. The Company is not bound by this
requirement if it is filing a registration statement on Form S-8, Form S-4 or
any similar form, a registration statement filed in connection with a share
exchange or an offering solely to the Company's employees or existing
stockholders, or a registration statement registering a unit offering. The
Company will pay the registration expenses of the selling stockholders (other
than underwriting commissions, brokerage fees and transfer taxes applicable to
the shares sold by such stockholders or the fees and expenses of any accountants
or other representatives retained by a selling stockholder). The Registration
Rights Agreement is attached hereto as Exhibit 10.9 and the terms of the
Registration Rights Agreement are incorporated herein by reference.

                                       77

<PAGE>

     In June 2001, Berkshire Hathaway Inc. ("Berkshire") purchased shares of
preferred stock and Class C Common Stock of the Company from Court Square and
shares of preferred stock and Class B Common Stock of the Company from World
Equity Partners, L.P. In November 2001, Dresdner Kleinwort Capital Partners 2001
LP ("Dresdner") purchased shares of preferred stock and Class C Common Stock of
the Company from Court Square. In connection with these transactions, the
Securities Holders Agreement, the Preferred Stockholders Agreement and the
Registration Rights Agreement were amended to make Berkshire and Dresdner
parties to those agreements pursuant to the terms specified in such amendments.
Also in connection with these transactions, Court Square agreed to vote its
shares in favor of electing a designee of Dresdner to the Company's Board of
Directors until December 1, 2002, provided that the designee resigns from the
Board of Directors at such time. The amendments are attached hereto as Exhibits
10.27 through 10.32 and the terms thereof are incorporated herein by reference.

     In 2002 the Company entered into to an advisory agreement with CVC
Management LLC (the "Advisor"), an affiliate of Court Square and CVC Equity
Partners. Under the terms of the agreement, the Advisor is required to provide
executive, management, consulting and support services to the Company and
certain of its subsidiaries. The Advisor is entitled to receive an initial
advisory fee of $1 million for 2002 and an advisory fee of $1 million for each
year thereafter, payable in equal quarterly installments. The advisory agreement
continues until December 31, 2006 and is automatically renewed from year to year
thereafter unless terminated by either of the parties. The Advisor is also
entitled to receive a transaction fee of $2.5 million for services provided in
connection with the refinancing of the Company's senior credit facilities in
2002 and may receive additional transaction fees under the advisory agreement in
amounts to be agreed upon by the parties for services provided in connection
with future financings, acquisitions and divestitures The Advisor has agreed to
defer payment of the initial $3.5 million payable under the agreement until June
27, 2003.

ITEM 14   CONTROLS AND PROCEDURES

(a)  Within 90 days prior to the date of the filing of this report, the Company
     carried out an evaluation, under the supervision and with the participation
     of its principal executive officer and principal financial officer, of the
     effectiveness of the design and operation of its disclosure controls and
     procedures. Based on this evaluation, the Company's principal executive
     officer and principal financial officer concluded that the Company's
     disclosure controls and procedures were effective in timely alerting it to
     material information required to be included in the Company's periodic SEC
     reports.

(b)  In addition, the Company reviewed its internal controls, and there have
     been no significant changes in its internal controls or in other factors
     that could significantly affect those controls subsequent to the date of
     their last evaluation.

                                       78

<PAGE>

                                     PART IV

ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents have been filed as a part of this report or, where
noted, incorporated by reference:

     1.   Financial Statements

          The Consolidated Financial Statements and related Notes thereto as set
          forth under Item 8 of this Report on Form 10-K are incorporated herein
          by reference.

     2.   Financial Statement Schedules

          Financial statement schedules have not been filed because they are not
          applicable or the required information is shown in the financial
          statements or the notes thereto.

     3.   Exhibits

          The following exhibits have been filed as part of this report in
          response to Item 14(c) of Form 10-K:

     (1)  2.1  Agreement and Plan of Merger dated as of February 7, 2001 by and
               among Court Square, DRI Acquisition LLC and the Company

     (2)  2.2  Amendment No. 1 to Agreement and Plan of Merger

     (2)  3.1  Amended and Restated Certificate of Incorporation

     (2)  3.2  By-laws of the Company

     (6)  4.1  Indenture, dated as of August 1, 1996, among the Company, certain
               of the Company's subsidiaries signatories thereto and National
               City Bank of Indiana, as trustee

     (7)  4.2  Indenture governing 8 5/8% Senior Notes Due 2007 among the
               Company, the Subsidiary Guarantors and United States Trust
               Company of New York, as trustee, dated December 22, 1997

     (13) 4.3  Indenture governing 11% Senior Subordinated Notes Due 2009 among
               the Company, the Subsidiary Guarantors and First Union National
               Bank, as trustee, dated April 26, 2001.

     (6)* 10.1 Light Duty Starter Motor Supply Agreement, dated July 31, 1994,
               by and between Delco Remy America, Inc. ("DRA") and GM.

     (6)  10.2 Heavy Duty Component Supply Agreement, dated July 31, 1994, by
               and between DRA and GM

     (6)  10.3 Distribution and Supply Agreement, dated July 31, 1994, by and
               between DRA and GM

     (3)  10.4 Trademark License, dated July 31, 1994, by and among DRA, DR
               International, Inc. and GM

     (3)  10.5 Tradename License Agreement, dated July 31, 1994, by and among
               DRA, DR International, Inc. and GM

     (3)  10.6 Partnership Agreement of Delco Remy Mexico S. de R.L. de C.V.,
               dated April 17, 1997

                                       79

<PAGE>

     (4)  10.7  Joint Venture Agreement by and between Remy Korea Holdings, Inc.
                and S.C. Kim

     (2)  10.8  Securities Transfer, Recapitalization and Holders Agreement
                dated March 14, 2001 by and among the Company, DRI Acquisition
                Corporation, Court Square Capital Limited, World Equity
                Partners, L.P., DRI Group LLC and the Continuing Investors named
                therein

     (2)  10.9  Registration Rights Agreement for Common Stock dated March 14,
                2001 by and among the Company, Court Square Capital Limited,
                World Equity Partners, L.P., DRI Group LLC and the Continuing
                Investors named therein

     (5)  10.10 Employment Agreement, dated July 31, 1994, by and between Delco
                Remy International, Inc. and Thomas J. Snyder

     (16) 10.11 Loan and Security Agreement by and among Delco Remy
                International, Inc. and certain Subsidiaries of Delco Remy
                International, Inc. named therein as Borrowers, Congress
                Financial Corporation (Central), as Administrative Agent and US
                Collateral Agent, Wachovia Bank, National Association as
                Documentation Agent and the Financial Institutions named therein
                dated June 28, 2002.

     (4)  10.15 Lease by and between ANDRA L.L.C. and DRA, dated February 9,
                1995

     (4)  10.16 Lease by and between Eagle I L.L.C. and DRA, dated August 11,
                1995

     (8)  10.20 Starter Motor Pricing Agreement, dated March 17, 1999, by and
                between DRA and GM.

     (2)  10.21 Preferred Stockholders Agreement dated March 14, 2001 by and
                among Court Square Capital Limited, World Equity Partners, L.P.,
                DRI Group LLC and the Continuing Investors named therein

     (2)  10.22 Stock Purchase Warrant dated March 14, 2001 issued by the
                Company to World Equity Partners, L.P.

     (9)  10.23 Letter Agreement by and between the Company and Thomas J.
                Snyder, dated as of February 6, 2001

     (10) 10.24 Form of Letter Agreement by and between the Company and each of
                J. Timothy Gargaro, Joseph P. Felicelli, Richard L. Stanley,
                Susan E. Goldy, Roderick English and Patrick Mobouck, each dated
                as of February 6, 2001

     (11) 10.25 Amendment Number Two to the Delco Remy International, Inc.
                Supplemental Executive Retirement Plan, dated as of February 6,
                2001

     (12) 10.26 Form of Amendment Number Two to the Collateral Assignment Split-
                Dollar Insurance Agreement by and between the Company and each
                of Thomas J. Snyder, J. Timothy Gargaro, Joseph P. Felicelli,
                Richard L. Stanley, Susan E. Goldy and Roderick English

     (14) 10.27 Amendment No. 1 to the Securities Transfer, Recapitalization and
                Holders Agreement, dated June 27, 2001, by and among the
                Company, Court Square Capital Limited, DRI Group LLC, the
                Individual Investors named therein and Berkshire Hathaway Inc.

     (14) 10.28 Amendment No. 1 to the Registration Rights Agreement, dated June
                27, 2001, by and among the Company, Court Square Capital
                Limited, DRI Group LLC, the Individual Investors named therein
                and Berkshire Hathaway Inc.

                                       80

<PAGE>

     (14) 10.29 Amendment No. 1 to the Preferred Stockholders Agreement, dated
                June 27, 2001, by and among the Company, Court Square Capital
                Limited, DRI Group LLC, the Individual Investors named therein
                and Berkshire Hathaway Inc.

     (15) 10.30 Amendment No. 2 to the Securities Transfer, Recapitalization and
                Holders Agreement, dated November 29, 2001, by and among the
                Company, Court Square Capital Limited, DRI Group LLC, the
                Individual Investors named therein, Berkshire Hathaway Inc. and
                Dresdner Kleinwort Capital Partners 2001 LP

     (15) 10.31 Amendment No. 2 to the Registration Rights Agreement, dated
                November 29, 2001, by and among the Company, Court Square
                Capital Limited, DRI Group LLC, the Individual Investors named
                therein, Berkshire Hathaway Inc. and Dresdner Kleinwort Capital
                Partners 2001 LP

     (15) 10.32 Amendment No. 2 to the Preferred Stockholders Agreement, dated
                November 29, 2001, by and among the Company, Court Square
                Capital Limited, DRI Group LLC, the Individual Investors named
                therein, Berkshire Hathaway Inc. and Dresdner Kleinwort Capital
                Partners 2001 LP

          10.33 Letter Agreement dated March 18, 2002 by and between the Company
                and Rajesh K. Shah

          10.34 Separation Agreement and Release dated March 18, 2002 by and
                between the Company and Rajesh K. Shah

          10.35 Advisory Agreement dated December 10, 2002 by and among the
                Company, certain of the Company's subsidiaries and CVC
                Management LLC

          10.36 Side Letter Agreement dated December 10, 2002 by and among the
                Company, certain of the Company's subsidiaries and CVC
                Management LLC

     (15) 21    Subsidiaries of the Registrant

     *          Portions of this exhibit have been omitted pursuant to a request
                for confidential treatment.

     (1)        Incorporated by reference to Exhibit (a)(8) to Amendment No. 1
                to the Solicitation/Recommendation Statement on Schedule 14D-9
                filed by the Company on February 9, 2001

     (2)        Incorporated by reference to the Exhibit of the same number to
                the Company's Form 10-K for the transition period from August 1,
                2000 to December 31, 2000 filed by the Company on March 30, 2001

     (3)        Incorporated by reference to the Exhibit of the same number to
                the Registration Statement on Form S-1 previously filed by the
                Company on October 10, 1997, registering the issuance of the
                Company's Class A Common Stock, par value $.01 per share (the
                "Equity Registration Statement")

     (4)        Incorporated by reference to the Exhibit of the same number to
                Amendment No. 1 to the Equity Registration Statement which was
                filed by the Company on October 22, 1997

     (5)        Incorporated by reference to the Exhibit of the same number to
                Amendment No. 2 to the Equity Registration Statement which was
                filed by the Company on November 21, 1997

                                       81

<PAGE>

     (6)  Incorporated by reference to the Exhibit of the same number to
          Amendment No. 3 to the Equity Registration Statement which was filed
          by the Company on November 26, 1997

     (7)  Incorporated by reference to Exhibit 4.1 to the Company's Form 10-Q
          for the quarter ended January 31, 1998

     (8)  Incorporated by reference to Exhibit 10.20 to the Company's Form 10-K
          for the year ended July 31, 1999

     (9)  Incorporated by reference to Exhibit (e)(4) to Amendment No. 1 to the
          Solicitation/Recommendation Statement on Schedule 14D-9 filed by the
          Company on February 9, 2001

     (10) Incorporated by reference to Exhibit (e)(5) to Amendment No. 1 to the
          Solicitation/Recommendation Statement on Schedule 14D-9 filed by the
          Company on February 9, 2001

     (11) Incorporated by reference to Exhibit (e)(6) to Amendment No. 1 to the
          Solicitation/Recommendation Statement on Schedule 14D-9 filed by the
          Company on February 9, 2001

     (12) Incorporated by reference to Exhibit (e)(7) to Amendment No. 1 to the
          Solicitation/Recommendation Statement on Schedule 14D-9 filed by the
          Company on February 9, 2001

     (13) Incorporated by reference to the Exhibit of the same number to the
          Registration Statement on Form S-4 previously filed by the Company on
          July 20, 2001.

     (14) Incorporated by reference to the Exhibit of the same number to
          Amendment No. 1 to the Registration Statement on Form S-4 filed by the
          Company on July 31, 2001

     (15) Incorporated by reference to the Exhibit of the same number to the
          Company's Form 10-K for the year ended December 31, 2001.

     (16) Incorporated by reference to Exhibit 99.2 to the Company's Form 8-K
          dated July 3, 2002.

(b)  Reports on Form 8-K:

          None.

                                       82

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                         DELCO REMY INTERNATIONAL, INC.

                                         By:  /S/ Thomas J. Snyder
                                              -------------------------------
                                              Thomas J. Snyder President,
                                              Chief Executive Officer and
                                              Director

                                              Date: March 28, 2003

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.


By:  /S/ Harold K. Sperlich              By:  /S/ Thomas J. Snyder
     -----------------------------            ----------------------------------
     Harold K. Sperlich                       Thomas J. Snyder
     Chairman of the Board                    President, Chief Executive Officer
                                              and Director
                                              (Principal Executive Officer)

By:  /S/ Rajesh K. Shah                  By:  /S/ Allen R. Wilkie
     -----------------------------            ----------------------------------
     Rajesh K. Shah                           Allen R. Wilkie
     Executive Vice President and             Vice President and
     Chief Financial Officer                  Operations Controller
     (Principal Financial Officer)            (Principal Accounting Officer)

By:  /S/ E.H. Billig
     -----------------------------
     E.H. Billig
     Vice Chairman of the
     Board of Directors                    Date: March 28, 2003

By:
     -----------------------------
     Richard M. Cashin, Jr.
     Director

By:  /S/ Alexander P. Coleman
     -----------------------------
     Alexander P. Coleman
     Director

By:  /S/ Michael A. Delaney
     -----------------------------
     Michael A. Delaney
     Director

By:  /S/ James R. Gerrity
     -----------------------------
     James R. Gerrity
     Director

By:  /S/ Robert J. Schultz
     -----------------------------
     Robert J. Schultz
     Director

By:  /S/ Joseph M. Silvestri
     -----------------------------
     Joseph M. Silvestri
     Director

                                       83

<PAGE>

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE EXCHANGE ACT.

     (a) (1) No annual report is provided to the noteholders other than copies
of Registrant's Annual Report on Form 10-K.

     (a) (2) No proxy statement, form of proxy or other proxy soliciting
material has been sent to more than 10 of the Registrant's security holders with
respect to any annual or other meeting of Registrant's security holders.

                                       84

<PAGE>

                                 CERTIFICATIONS

I, Thomas J. Snyder, certify that:

     1.   I have reviewed this annual report on Form 10-K of Delco Remy
          International, Inc.;

     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

     4.   The registrant's other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and have:

               a)   designed such disclosure controls and procedures to ensure
                    that material information relating to the registrant,
                    including its consolidated subsidiaries, is made known to us
                    by others within those entities, particularly during the
                    period in which this annual report is being prepared;

               b)   evaluated the effectiveness of the registrant's disclosure
                    controls and procedures as of a date within 90 days prior to
                    the filing date of this annual report (the "Evaluation
                    Date"); and

               c)   presented in this annual report our conclusions about the
                    effectiveness of the disclosure controls and procedures
                    based on our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent functions):

               a)   all significant deficiencies in the design or operation of
                    internal controls which could adversely affect the
                    registrant's ability to record, process, summarize and
                    report financial data and have identified for the
                    registrant's auditors any material weaknesses in internal
                    controls; and

               b)   any fraud, whether, or not material, that involves
                    management or other employees who have a significant role in
                    the registrant's internal controls; and

     6.   The registrant's other certifying officers and I have indicated in
          this annual report whether there were significant changes in internal
          controls or in other factors that could significantly affect internal
          controls subsequent to the date of our most recent evaluation,
          including any corrective actions with regard to significant
          deficiencies and material weaknesses.


     Date: March 28, 2003                                /s/ Thomas J. Snyder
                                                         --------------------
                                                         Thomas J. Snyder
                                                         President and
                                                         Chief Executive Officer

                                       85

<PAGE>

                                 CERTIFICATIONS

I, Rajesh K. Shah, certify that:

     1.   I have reviewed this annual report on Form 10-K of Delco Remy
          International, Inc.;

     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

     4.   The registrant's other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and have:

               a)   designed such disclosure controls and procedures to ensure
                    that material information relating to the registrant,
                    including its consolidated subsidiaries, is made known to us
                    by others within those entities, particularly during the
                    period in which this annual report is being prepared;

               b)   evaluated the effectiveness of the registrant's disclosure
                    controls and procedures as of a date within 90 days prior to
                    the filing date of this annual report (the "Evaluation
                    Date"); and

               c)   presented in this annual report our conclusions about the
                    effectiveness of the disclosure controls and procedures
                    based on our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent functions):

               a)   all significant deficiencies in the design or operation of
                    internal controls which could adversely affect the
                    registrant's ability to record, process, summarize and
                    report financial data and have identified for the
                    registrant's auditors any material weaknesses in internal
                    controls; and

               b)   any fraud, whether, or not material, that involves
                    management or other employees who have a significant role in
                    the registrant's internal controls; and

     6.   The registrant's other certifying officers and I have indicated in
          this annual report whether there were significant changes in internal
          controls or in other factors that could significantly affect internal
          controls subsequent to the date of our most recent evaluation,
          including any corrective actions with regard to significant
          deficiencies and material weaknesses.


     Date: March 28, 2003                       /s/ Rajesh K. Shah
                                                --------------------------------
                                                    Rajesh K. Shah
                                                    Executive Vice President and
                                                    Chief Financial Officer

                                       86