##### Table of Contents

---

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

---

FORM
10-Q

---

| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 2003

OR

| | o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------

FOR THE
TRANSITION PERIOD FROMTO.

COMMISSION FILE NO.
1-13683

---

DELCO REMY INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

---



| | Delaware(State or other jurisdiction ofincorporation or organization) |  | 35-1909253(I.R.S. EmployerIdentification No.) | 
| | --------------------------------------------------------------------- |  | --------------------------------------------- | 

| | 2902 Enterprise DriveAnderson, Indiana(Address of principal executive offices) |  | 46013(Zip Code) | 
| | ------------------------------------------------------------------------------ |  | --------------- | 

(765) 778-6499(Registrants telephone number, including area code)

Not Applicable(Former name, former address and former fiscal year, if changed since last report)

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 o

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN EXCHANGE ACT RULE
12B-2).

Yes o No x

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



|                                                                   |  | Outstandingas of August 6, 2003
|------------------------------------------------------------------ |  | -------------------------------
|                                                                   |  |                                
|                                                                   |  |                                
|Common Stock  Class ACommon Stock  Class BCommon Stock 
Class C |  | 1,000.002,485,337.4916,687.00  

---



1



---

##### Table of Contents



Delco Remy International, Inc. and Subsidiaries

INDEX



|       |  |                       |  |                                                                                       | Page
|------ |  | --------------------- |  | ------------------------------------------------------------------------------------- | ----
|       |  |                       |  |                                                                                       |     
|PARTI  |  | FINANCIAL INFORMATION | 
|       |  |                       |  |                                                                                       |     
|       |  | Item 1                |  | Financial Statements                                                                  |     
|       |  |                       |  |                                                                                       |     
|       |  |                       |  | Condensed Consolidated Balance Sheets                                                 | 3   
|       |  |                       |  |                                                                                       |     
|       |  |                       |  | Condensed Consolidated Statements of Operations                                       | 4   
|       |  |                       |  |                                                                                       |     
|       |  |                       |  | Condensed Consolidated Statements of Cash Flows                                       | 5   
|       |  |                       |  |                                                                                       |     
|       |  |                       |  | Notes to Condensed Consolidated Financial Statements                                  | 6   
|       |  |                       |  |                                                                                       |     
|       |  | Item 2                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations | 23  
|       |  |                       |  |                                                                                       |     
|       |  | Item 3                |  | Quantitative and Qualitative Disclosures About Market Risk                            | 31  
|       |  |                       |  |                                                                                       |     
|       |  | Item 4                |  | Controls and Procedures                                                               | 31  
|       |  |                       |  |                                                                                       |     
|PARTII |  | OTHER INFORMATION     | 
|       |  |                       |  |                                                                                       |     
|       |  | Item 1                |  | Legal Proceedings                                                                     | 32  
|       |  |                       |  |                                                                                       |     
|       |  | Item 2                |  | Changes in Securities and Use of Proceeds                                             | 34  
|       |  |                       |  |                                                                                       |     
|       |  | Item 3                |  | Defaults Upon Senior Securities                                                       | 34  
|       |  |                       |  |                                                                                       |     
|       |  | Item 4                |  | Submission of Matters to a Vote of Security Holders                                   | 34  
|       |  |                       |  |                                                                                       |     
|       |  | Item 5                |  | Other Information                                                                     | 34  
|       |  |                       |  |                                                                                       |     
|       |  | Item 6                |  | Exhibits and Reports on Form 8-K                                                      | 34  



|SIGNATURES    | 35
|------------- | --
|              |   
|EXHIBIT INDEX | 36

2



---

##### Table of Contents

PART I FINANCIAL INFORMATION

| | Item 1. | Financial Statements
| | ------- | --------------------

Delco Remy International, Inc. and SubsidiariesCondensed Consolidated Balance Sheets(in thousands)



|                                             |  | June 30,2003 |          | December31,2002 |  
|-------------------------------------------- |  | ------------ | -------- | --------------- | -
|                                             |  |              |          |                 |  
|                                             |  | (unaudited)  |          |                 |  
|                                             |  |              |          |                 |  
|Assets                                       |  |              |          |                 |  
|Current assets:                              |  |              |          |                 |  
|Cash and cash equivalents                    |  | $            | 10,138   |                 | $
|Trade accounts receivable, net               |  |              | 168,965  |                 |  
|Other receivables                            |  |              | 13,100   |                 |  
|Inventories                                  |  |              | 307,758  |                 |  
|Deferred income taxes                        |  |              | 14,266   |                 |  
|Assets of discontinued operations            |  |              | 643      |                 |  
|Other current assets                         |  |              | 13,906   |                 |  
|                                             |  |              |          |                 |  
|Total current assets                         |  |              | 528,776  |                 |  
|Property and equipment                       |  |              | 294,277  |                 |  
|Less accumulated depreciation                |  |              | (165,793 | )               |  
|                                             |  |              |          |                 |  
|Property and equipment, net                  |  |              | 128,484  |                 |  
|Deferred financing costs, net                |  |              | 15,247   |                 |  
|Goodwill, net                                |  |              | 120,857  |                 |  
|Investments in joint ventures                |  |              | 6,091    |                 |  
|Deferred income taxes                        |  |              | 10,230   |                 |  
|Other assets                                 |  |              | 19,233   |                 |  
|                                             |  |              |          |                 |  
|Total assets                                 |  | $            | 828,918  |                 | $
|                                             |  |              |          |                 |  
|                                             |  |              |          |                 |  
|Liabilities and stockholders deficit        |  |              |          |                 |  
|Current liabilities:                         |  |              |          |                 |  
|Accounts payable                             |  | $            | 141,688  |                 | $
|Accrued interest                             |  |              | 9,730    |                 |  
|Accrued restructuring charges                |  |              | 13,485   |                 |  
|Liabilities of discontinued operations       |  |              | 2,240    |                 |  
|Other liabilities and accrued expenses       |  |              | 80,450   |                 |  
|Current portion of debt                      |  |              | 35,733   |                 |  
|                                             |  |              |          |                 |  
|Total current liabilities                    |  |              | 283,326  |                 |  
|Long-term debt, less current portion         |  |              | 604,928  |                 |  
|Post-retirement benefits other than pensions |  |              | 17,459   |                 |  
|Accrued pension benefits                     |  |              | 16,473   |                 |  
|Accrued restructuring charges                |  |              | 7,312    |                 |  
|Other non-current liabilities                |  |              | 11,638   |                 |  
|Commitments and contingencies                |  |              |          |                 |  
|Minority interest in subsidiaries            |  |              | 20,399   |                 |  
|Redeemable preferred stock                   |  |              | 290,015  |                 |  
|Stockholders equity:                        |  |              |          |                 |  
|Common stock:                                |  |              |          |                 |  
|Class A shares                               |  |              |         |                 |  
|Class B shares                               |  |              | 3        |                 |  
|Class C shares                               |  |              |         |                 |  
|Retained deficit                             |  |              | (407,704 | )               |  
|Accumulated other comprehensive loss         |  |              | (14,931  | )               |  
|                                             |  |              |          |                 |  
|Total stockholders deficit                  |  |              | (422,632 | )               |  
|                                             |  |              |          |                 |  
|Total liabilities and stockholders deficit  |  | $            | 828,918  |                 | $
|                                             |  |              |          |                 |  

See Notes to Condensed Consolidated Financial Statements

3



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidated Statements of Operations(Unaudited)(in thousands)



|                                                                                                                                                                                 |  | Three Month PeriodEnded June 30 |         | Six Month PeriodEnded June 30 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ----------------------------- | -
|                                                                                                                                                                                 |  |                                 |         |                               |  
|                                                                                                                                                                                 |  | 2003                            |         | 2002                          |  
|                                                                                                                                                                                 |  |                                 |         |                               |  
|Net sales                                                                                                                                                                        |  | $                               | 272,132 |                               | $
|Cost of goods sold                                                                                                                                                               |  |                                 | 221,116 |                               |  
|                                                                                                                                                                                 |  |                                 |         |                               |  
|Gross profit                                                                                                                                                                     |  |                                 | 51,016  |                               |  
|Selling, general and administrative expenses                                                                                                                                     |  |                                 | 24,897  |                               |  
|Restructuring charges (credits)                                                                                                                                                  |  |                                 | (485    | )                             |  
|                                                                                                                                                                                 |  |                                 |         |                               |  
|Operating income (loss)                                                                                                                                                          |  |                                 | 26,604  |                               |  
|Interest expense, net                                                                                                                                                            |  |                                 | (16,772 | )                             |  
|Other non-operating (expense) income                                                                                                                                             |  |                                 | (310    | )                             |  
|                                                                                                                                                                                 |  |                                 |         |                               |  
|Income (loss) from continuing operations before income taxes, minority interest, loss from unconsolidated joint ventures and cumulative
effect of change in accounting principle |  |                                 | 9,522   |                               |  
|Income tax expense                                                                                                                                                               |  |                                 | 4,904   |                               |  
|Minority interest                                                                                                                                                                |  |                                 | (972    | )                             |  
|Loss from unconsolidated joint ventures                                                                                                                                          |  |                                 | (5,012  | )                             |  
|                                                                                                                                                                                 |  |                                 |         |                               |  
|Net (loss) income from continuing operations before cumulative effect of change in accounting principle                                                                          |  |                                 | (1,366  | )                             |  
|Discontinued operations:                                                                                                                                                         |  |                                 |         |                               |  
|Loss from discontinued operations (including estimated gain on disposal of $2.4 million in the first quarter of 2003 and loss of $26.5
million in2002)                           |  |                                 | (640    | )                             |  
|Income tax benefit                                                                                                                                                               |  |                                 |        |                               |  
|                                                                                                                                                                                 |  |                                 |         |                               |  
|Loss from discontinued operations                                                                                                                                                |  |                                 | (640    | )                             |  
|Cumulative effect of change in accounting principle, net                                                                                                                         |  |                                 |        |                               |  
|                                                                                                                                                                                 |  |                                 |         |                               |  
|Net loss                                                                                                                                                                         |  |                                 | (2,006  | )                             |  
|Preferred dividends                                                                                                                                                              |  |                                 | 8,385   |                               |  
|                                                                                                                                                                                 |  |                                 |         |                               |  
|Net loss attributable to common stockholders                                                                                                                                     |  | $                               | (10,391 | )                             | $
|                                                                                                                                                                                 |  |                                 |         |                               |  

See Notes to Condensed Consolidated Financial Statements

4



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidated Statements of Cash Flows(Unaudited)(in thousands)



|                                                                                          |  | Six Month PeriodEnded June 30 |        
|----------------------------------------------------------------------------------------- |  | ----------------------------- | -------
|                                                                                          |  |                               |        
|                                                                                          |  | 2003                          |        
|                                                                                          |  |                               |        
|Operating activities:                                                                     |  |                               |        
|Net loss                                                                                  |  | $                             | (51,090
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |                               |        
|Cumulative effect of change in accounting principle                                       |  |                               |       
|Loss from discontinued operations                                                         |  |                               | 4,387  
|(Gain) loss on disposal of discontinued operations                                        |  |                               | (2,417 
|Depreciation                                                                              |  |                               | 12,058 
|Amortization                                                                              |  |                               | 742    
|Minority interest in subsidiaries                                                         |  |                               | 759    
|Loss from unconsolidated joint ventures                                                   |  |                               | 5,727  
|Deferred income taxes                                                                     |  |                               | 2,941  
|Post-retirement benefits other than pensions                                              |  |                               | (6,094 
|Accrued pension benefits                                                                  |  |                               | 2,046  
|Non-cash interest expense                                                                 |  |                               | 2,370  
|Changes in operating assets and liabilities, net of acquisitions:                         |  |                               |        
|Accounts receivable                                                                       |  |                               | (21,398
|Inventories                                                                               |  |                               | (25,364
|Accounts payable                                                                          |  |                               | 472    
|Other current assets and liabilities                                                      |  |                               | 12,164 
|Restructuring charges (credits)                                                           |  |                               | 44,600 
|Cash payments for restructuring charges                                                   |  |                               | (11,850
|Other non-current assets and liabilities, net                                             |  |                               | 1,786  
|                                                                                          |  |                               |        
|Net cash (used in) provided by operating activities of continuing operations              |  |                               | (28,161
|Investing activities:                                                                     |  |                               |        
|Acquisitions, net of cash acquired                                                        |  |                               | (4,919 
|Net proceeds on sale of businesses                                                        |  |                               | 27,876 
|Purchases of property and equipment                                                       |  |                               | (8,966 
|Investments in joint ventures                                                             |  |                               |       
|                                                                                          |  |                               |        
|Net cash provided by (used in) investing activities of continuing operations              |  |                               | 13,991 
|Financing activities:                                                                     |  |                               |        
|Net borrowings under revolving line of credit and other                                   |  |                               | 10,004 
|Issuance of long-term debt                                                                |  |                               | 4,545  
|Deferred financing costs                                                                  |  |                               |       
|Distributions to minority interests                                                       |  |                               |       
|                                                                                          |  |                               |        
|Net cash provided by financing activities of continuing operations                        |  |                               | 14,549 
|Effect of exchange rate changes on cash                                                   |  |                               | 273    
|Cash flows of discontinued operations                                                     |  |                               | (2,940 
|                                                                                          |  |                               |        
|Net (decrease) increase in cash and cash equivalents                                      |  |                               | (2,288 
|Cash and cash equivalents at beginning of period                                          |  |                               | 12,426 
|                                                                                          |  |                               |        
|Cash and cash equivalents at end of period                                                |  | $                             | 10,138 
|                                                                                          |  |                               |        

See Notes to Condensed Consolidated Financial Statements

5



---

##### Table of Contents

DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(dollars in thousands)

1.Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements in this
Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2002. The unaudited, condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation
have been included. Certain prior year amounts have been reclassified to conform to the current years presentation. The Company reclassified operating results and cash flows in 2002 to reflect the classification of the Companys retail
aftermarket gas engine business, contract remanufacturing gas engine business, Tractech, Inc. (Tractech) and Kraftube, Inc. (Kraftube) as discontinued operations. The Company also reclassified the balance sheet at December
31, 2002 to reflect the classification of the Companys contract remanufacturing gas engine business, Tractech and Kraftube as discontinued operations. For more information on this matter refer to Note 6 and Note 8.

Operating results for the three-month and six-month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the full year. The balance sheet at December 31,
2002 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Other than as described in Note 5,
the Company has not materially changed its significant accounting policies from those disclosed in its Form 10-K for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and notes thereto for the
year ended December 31, 2002.

2.Additional Balance Sheet Information

The components of inventory were as follows:



|                |  | June 30,2003 |         | December31,2002 |  
|--------------- |  | ------------ | ------- | --------------- | -
|                |  |              |         |                 |  
|Raw material    |  | $            | 157,434 |                 | $
|Work-in-process |  |              | 37,342  |                 |  
|Finished goods  |  |              | 112,982 |                 |  
|                |  |              |         |                 |  
|Total           |  | $            | 307,758 |                 | $
|                |  |              |         |                 |  

3.Accumulated Other Comprehensive
Income (Loss)

The Companys other comprehensive income (loss) consists of unrealized net gains and losses on the translation of the assets and liabilities of its foreign
operations, currency instruments and minimum pension

6



---

##### Table of Contents

liability adjustments. The before tax income (loss), related income tax effect and accumulated balance are as follows:



|                             |  | ForeignCurrencyTranslationAdjustment |         | UnrealizedGains(Losses)onCurrencyInstruments |   | MinimumPensionLiabilityAdjustments |   | AccumulatedOtherComprehensiveLoss |       
|---------------------------- |  | ------------------------------------ | ------- | -------------------------------------------- | - | ---------------------------------- | - | --------------------------------- | ------
|                             |  |                                      |         |                                              |   |                                    |   |                                   |       
|Balance at December 31, 2002 |  | $                                    | (10,469 | )                                            | $ | 335                                |   | $                                 | (5,934
|Before tax                   |  |                                      | (1,196  | )                                            |   | (398                               | ) |                                   |      
|Income tax effect            |  |                                      | (395    | )                                            |   | (63                                | ) |                                   |      
|                             |  |                                      |         |                                              |   |                                    |   |                                   |       
|Other comprehensive loss     |  |                                      | (801    | )                                            |   | (335                               | ) |                                   |      
|                             |  |                                      |         |                                              |   |                                    |   |                                   |       
|Balance at March 31, 2003    |  |                                      | (11,270 | )                                            |   |                                   |   |                                   | (5,934
|Before tax                   |  |                                      | 3,393   |                                              |   |                                   |   |                                   |      
|Income tax effect            |  |                                      | 1,120   |                                              |   |                                   |   |                                   |      
|                             |  |                                      |         |                                              |   |                                    |   |                                   |       
|Other comprehensive income   |  |                                      | 2,273   |                                              |   |                                   |   |                                   |      
|                             |  |                                      |         |                                              |   |                                    |   |                                   |       
|Balance at June 30, 2003     |  | $                                    | (8,997  | )                                            | $ |                                   |   | $                                 | (5,934
|                             |  |                                      |         |                                              |   |                                    |   |                                   |       

The Companys total comprehensive income (loss) is derived as follows:



|                                  | Three Month Period Ended June 30 |        | Six Month Period Ended June 30 |  
|--------------------------------- | -------------------------------- | ------ | ------------------------------ | -
|                                  | 2003                             |        | 2002                           |  
|Net loss                          | $                                | (2,006 | )                              | $
|Other comprehensive income        |                                  | 2,273  |                                |  
|                                  |                                  |        |                                |  
|Total comprehensive income (loss) | $                                | 267    |                                | $
|                                  |                                  |        |                                |  

4.Restructuring Charges

In the first quarter of 2003, the Company completed plans for the closure of its starter and alternator manufacturing operations in Anderson, Indiana and electrical aftermarket remanufacturing and
distribution facilities in Reed City, Michigan, and the consolidation of its alternator and starter remanufacturing operations in Mississippi. These actions are part of the Companys ongoing efforts to reduce cost and improve efficiencies.  A charge of $45,085 was recorded in the first quarter of 2003 for the estimated cost of the plan in accordance with Statement of Financial Accounting Standards (SFAS) No. 146. The charge included $12,926 for the estimated cost of
various voluntary and involuntary employee separation programs associated with the resulting workforce reductions of approximately 600 employees. The charge also included $37,283 for the write down of certain assets and accrual of certain contract
termination costs resulting from these actions, $257 of miscellaneous costs, a $1,835 pension plan curtailment charge and is net of a curtailment gain of $7,216 relative to the post-employment benefit plan.  In the second quarter of 2003,
the Company recorded a net restructuring credit of $485, consisting of employee termination benefits associated with the closure of the electrical aftermarket remanufacturing and distribution facilities and reductions in the Companys
remanufactured diesel engine workforce totaling $657, other miscellaneous costs of $156 and a $1,298 credit for the reversal of an impairment charge recognized in the first quarter of 2003 on equipment that the Company has determined can be utilized
in one of its other facilities.

Relative to the 2003 employee termination benefit charges, a total of $3,703 and $2,061 were paid in the second quarter and first quarter of
2003, respectively, and $7,655 and $164 are expected to be paid in the last six months of 2003 and in 2004, respectively. Additional restructuring charges of between $4,000 and $7,000 associated with these actions are expected to be
recorded during the last six months of 2003.  A charge totaling $618 comprised of $428 for the write down of assets and $190 for employee separation programs was charged to discontinued operations in the first quarter of 2003 and second
quarter of 2003, respectively, in connection with the Companys plans to exit its contract remanufacturing operation for gas engines in Beaumont, Texas (see Note 8).

7



---

##### Table of Contents

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. Payments of $300, $304 and $115 were made in 2002 and the first quarter and second quarter of 2003, respectively, and the remainder of $334 is
expected to be paid during the last six months of 2003. The charge also included $1,771 for the estimated cost of closing facilities.

Also, in the first quarter of 2002, the
Company recorded a restructuring credit of $4,375, consisting of a post-employment benefit curtailment gain related to employee separation programs associated with the closure and realignment of certain manufacturing operations announced in the
fourth quarter of 2001.

In 2001, the Company recorded a charge of $39,349 in conjunction with plans for the closure and realignment of certain manufacturing facilities and
administrative functions in the United States (U.S.), Canada and Europe. The charge included $26,727 for the estimated cost of various voluntary and involuntary employee separation programs associated with workforce reductions of
approximately 820 production and administrative employees. A total of $2,482, $15,001, $4,809 and $144 were paid in 2001, 2002 and the first quarter and second quarter of 2003, respectively, and the remainder of approximately $4,291 is expected to
be paid in 2004.

In May 2000, the Company recorded a charge of $35,222 for the realignment of certain manufacturing facilities. The charge included $27,098 for the estimated
cost of various voluntary and involuntary employee separation programs associated with workforce reductions of approximately 860 employees, primarily production 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 years ended December 31, 2001 and 2002, respectively. An additional $3 was paid in the three months ended March 31, 2003 and approximately $105 is expected to be paid in the last six months of
2003.

The following table summarizes the reserve for restructuring charges for the six months ended June 30, 2003:



|                             |  | TerminationBenefits |         | Exit/ImpairmentCosts |   | Total   |  
|---------------------------- |  | ------------------- | ------- | -------------------- | - | ------- | -
|                             |  |                     |         |                      |   |         |  
|Reserve at December 31, 2002 |  | $                   | 10,652  |                      | $ | 2,994   |  
|Payments and charges         |  |                     | (11,386 | )                    |   | (25,364 | )
|Provisions                   |  |                     | 13,773  |                      |   | 31,445  |  
|                             |  |                     |         |                      |   |         |  
|Reserve at June 30, 2003     |  | $                   | 13,039  |                      | $ | 9,075   |  
|                             |  |                     |         |                      |   |         |  

| | (a) | Includes $3,834 and $1,317 classified as liabilities of discontinued operations at December 31, 2002 and June 30, 2003, respectively.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Includes $618 classified as loss from discontinued operations.
| | --- | --------------------------------------------------------------

5.Recently Issued Accounting Standards

In 2001, the Financial Accounting Standard Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires companies to record the fair value of a liability for an obligation related to an asset retirement 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

8



---

##### Table of Contents

long-lived asset. The Company adopted SFAS No. 143 effective January 1, 2003, and the adoption of this statement did not have a material impact on its
consolidated financial position or results of operations.

In 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections (SFAS No. 145). SFAS No. 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 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 the rescission of SFAS No. 4 were adopted effective January 1, 2003, and the extraordinary items resulting from debt extinguishments in 2002 and 2001 were reclassified as interest expense. Accordingly,
interest expense, net, increased approximately $1,800 and income from continuing operations decreased approximately $1,100 in the second quarter of 2002 and interest expense decreased approximately $1,100 and income from continuing operations
increased approximately $700 in the second quarter of 2001.

In 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
No. 146). SFAS No. 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 No. 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 No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company adopted SFAS No. 146 for any actions initiated
after January 1, 2003, and any future exit costs or disposal activities will be subject to this statement.

On December 31, 2002, the FASB issued SFAS No. 148, Accounting
for Stock-Based Compensation -Transition and Disclosure, an amendment of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 148). SFAS No. 148 provides alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entitys
accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS No. 148 amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting to require disclosure about those effects in interim
financial information. The Company does not currently offer any type of stock-based employee compensation under SFAS No. 148; therefore the adoption of this interpretation did not have an impact on the Companys consolidated financial position
or results of operations.

On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133 and is to be applied prospectively to contracts entered into or modified after June
30, 2003. The Company is currently evaluating the effects, if any, that this standard will have on its results of operations and financial position.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify certain financial instruments as a liability (or as an asset in some circumstances). The Company will adopt SFAS 150. Once adopted, and if applicable, the Company will be required
to

9



---

##### Table of Contents

classify its Preferred Stock as a liability and the corresponding accrued dividends as a component of interest expense.

6.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, Tractech and Kraftube, which were engaged in the manufacturing of traction control devices and components for the air-conditioning industry, respectively. The net
proceeds from the sales were $27,876 and a gain was recorded on the sales of $2,417, subject to final working capital adjustments. These non-core businesses are treated as discontinued operations beginning in the first quarter of 2003 and all prior
periods have been reclassified accordingly.

7.Acquisitions

During the six months ended June 30, 2003, the Company completed the acquisition of 51% of Hubei Delphi Automotive Generators Company, Ltd. (Hubei), a manufacturer of automotive and heavy duty generators for
the original equipment market and aftermarket based in China, for $3,600 in cash. Net assets acquired were $8,100 ($3,800 net of minority interest), including cash of $3,600. Also, during the six months ended June 30, 2003, the Company made payments
totaling $3,064 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 94.0% to 97.2%. The Company made payments totaling $1,396 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 93.4% to 95.2%. The Company also made payments of $459 on notes issued in connection with the acquisition of certain parts of the Delphi Corporation
(Delphi) alternator business in the fourth quarter of 2002.

8.Discontinued Operations

During the first quarter of 2003, the Company successfully completed the sale of Tractech and Kraftube. In connection with the sale, the Company recorded a gain on the sale of $2,417 as a gain
on the disposal of discontinued operations. The results from these businesses were treated as discontinued operations beginning in the first quarter of 2003. Operating results and cash flows in 2002, as well as the balance sheet at December 31,
2002, have been reclassified to reflect the classification of Tractech and Kraftube as discontinued operations.

In the first quarter of 2003, the Company completed plans to exit
its contract remanufacturing operation for gas engines in Beaumont, Texas. Operating results for this business have been classified as discontinued operations. A charge totaling $618 comprised of $428 for the write down of assets and $190 for
employee separation programs was charged to discontinued operations in the first quarter of 2003 and second quarter of 2003, respectively, relative to the exit of the Beaumont facility.

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
charges of $26,473 in the second quarter of 2002 and $1,775 in the fourth quarter of 2002 were recorded to write down the relevant assets to their estimated realizable value. An additional charge of $2,824 was recorded in the third quarter of 2002
for the estimated cost of employee termination benefits and closure of facilities (Note 4). Estimated future taxable income relative to discontinued operations, both in the U.S. 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 was established in the third quarter of 2002.

10



---

##### Table of Contents

Assets of $643 at June 30, 2003 consisted primarily of cash and inventories. Liabilities of $2,240 at June 30, 2003 consisted primarily of accounts payable
and accrued restructuring charges. Net sales and loss before income tax from all discontinued operations (excluding gains and losses on disposal) are as follows:



|                |  | ThreeMonthPeriodEndedJune30 |      | SixMonthPeriodEndedJune30 |  
|--------------- |  | --------------------------- | ---- | ------------------------- | -
|                |  |                             |      |                           |  
|                |  | 2003                        |      | 2002                      |  
|                |  |                             |      |                           |  
|Net sales       |  | $                           | 457  |                           | $
|Loss before tax |  |                             | (640 | )                         |  

The loss from discontinued operations before tax in the six months ended June 30, 2003 of $1,970
consisted of operating losses of $3,769, the aforementioned restructuring charges of $618, offset by the gain on the sale of Tractech and Kraftube of $2,417.

The loss from
discontinued operations before tax in the six months ended June 30, 2002 of $40,013 consisted of operating losses of $7,921, interest expense of $5,619 and the loss on the disposal of the retail aftermarket gas engine business of $26,473.

9.Income Taxes

The six months ended June 30, 2002
effective tax rate is reflective of the U.S. statutory rate (35%), adjusted for state income taxes and the tax impact from foreign operations. The six months ended June 30, 2003 effective tax rate is not reflective of the US statutory rate. This is
due primarily to managements decision to establish a valuation allowance against the deferred tax assets related to the year to date 2003 domestic losses. The year to date rate reflects the tax impact of income from foreign operations,
including dividend withholding taxes of $2,900.

10.Commitments and Contingencies

From time to time, the Company is party to various legal actions in the normal course of its business, including those related to commercial transactions, product liability, safety, health, taxes,
environmental and other matters.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | 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 and to sell its 24% interest in exchange for a $13,000 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 had 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 sought damages for breach of fiduciary duty, breaches of various contracts between and among the various parties, and tortious interference with contractual relations. The damages included a claim of
approximately $13,000 for the purchase of GCIDs interest in the Company and a claim for $17,000 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

11



---

##### Table of Contents

September 30, 2002, GCID and GCIS served expert reports claiming that GCID is owed approximately $23,300 for the purchase of its partnership
interest in DRM and that GCIS is owed approximately $17,650 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. On March 28, 2003, GCID and GCIS served revised expert reports claiming that GCID is owed approximately $53,000 for the purchase of
its partnership interest in DRM and that GCIS is owed approximately $23,000 under the Service Agreement. On April 25, 2003, the Named Parties filed an expert report denying GCIDs and GCISs monetary claims and setting forth an alternative
calculation of the purchase price for GCIDs interest in the partnership.

On April 23, 2003, the Arbitration Panel dismissed the tortious interference claims
and on April 24, 2003, granted the Named Parties motion for leave to file counterclaims against GCID, GCIS and their affiliate, the partnerships landlord, Sistemas y Componentes Electricos, S.A. de C.V. (SCE). The Named
Parties claim DRM and Remy Componentes have overpaid GCIS by approximately $1,800. The Named Parties also seek to enforce the May 3, 2000, letter of intent and to have certain advances in the amount of approximately $4,000 credited toward the buy
out price in the event that the Arbitration Panel concludes that RMH is obligated to purchase GCIDs interest. Subsequently, SCE asserted counterclaims against DRM and RMH.

The arbitration hearing began the week of May 19, 2003 and is scheduled to continue the week of August 19, 2003.

The Company
disputes all of the claims alleged in both the First and Second Amended Arbitration Demands and the counterclaims asserted by SCE and denies any liability for damages to GCID or any of its affiliates. The Company believes that it should make a total
payment to GCID of approximately $5,500 in exchange for GCIDs 24% interest in DRM, and that the Arbitration Panel should dismiss GCIDs damage claims. GCIS continues to provide services to DRM. In addition, SCE 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.

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) | On April 16, 2003, the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America (the UAW) and its Local Union 662 filed suit against the Company and Delco Remy America,
Inc. (DRA) in Federal District Court in the Southern District of Indiana, Indianapolis Division. The lawsuit was filed under Section 301 of the Labor Management Relations Act, 29 U.S.C. Sec. 185, seeking enforcement of an expired
Supplemental Unemployment Benefits (SUB) plan. The plaintiffs allege that the SUB plan provides supplemental unemployment benefits for 52 weeks and separation pay in an amount exceeding $20,000 for employees who were terminated as a
result of the closure of DRAs Anderson, Indiana production facilities at the end of March 2003. The plaintiffs also seek to enforce terminated provisions of a Health Care Program which the plaintiffs allege provides the terminated employees
with 25 months of continued hospital, surgical, medical, hearing aid, prescription drug, mental health, substance abuse and vision insurance coverage. The terminated employees were represented by the UAW and its Local Union 662 under various
agreements, which expired on March 31, 2003. The lawsuit was filed shortly after the UAW membership failed to ratify DRAs last, best and final offer for a Shutdown Agreement. The UAW filed an amended complaint on July 8, 2003 to which the
Company filed an answer on July 24, 2003. A case management plan has been approved by the

12



---

##### Table of Contents

magistrate, and the trial is currently expected to begin in October of 2004. The Company denies the material allegations of the complaint,
denies any wrongdoing and intends to defend itself vigorously.

| |       |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | The Remy Reman facilities in Mississippi identified certain possible violations of state air laws and notified the state environmental agency under the state voluntary audit disclosure rules. The state requested further
information regarding the disclosure and the subsidiary responded to the information requests in April of 2003. The facilities are currently in compliance with the air permit requirements.

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) | In April 2003, the Virginia Department of Environmental Quality issued a warning letter with respect to similar possible violations voluntarily disclosed to them with respect to the World Wide facility in Virginia. The
necessary permit application was submitted, the permit was issued, and no further corrective action is necessary. Because the violation has been corrected, and based on the states enforcement practice manual, we do not believe state
environmental agency intends to pursue enforcement or penalty actions for the past violations. However, if any such claim were pursued, the Company does not believe that the costs of such matters, if any, will have a material adverse effect on the
Companys results of operations, business or financial condition.

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (v) | The Company may also be required to make additional payments in connection with its acquisitions of M & M Knopf Auto Parts, Inc., Delco Remy Mexico, S. de R.L. de C.V., Mazda North American Operations (Mazda
NA) and AutoMatic Transmission International A/S. The Company expects that the aggregate amount of these additional payments will be in the range of $15,000 to $28,000 payable in 2003 to 2006.

11.Derivative Financial Instruments

Prior to February 2003,
the Company entered into a series of non-deliverable currency forward contracts 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 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. Derivative contracts that were entered into prior to February 2003 were designated as cash
flow hedges and, accordingly, changes in fair value were charged to other comprehensive income (loss) (see Note 3).

Beginning in February 2003, the Company entered into a series
of non-deliverable currency forward contracts and did not designate these as hedges. Therefore, gains and losses from changes in the market value of these non-deliverable forwards are recorded in the consolidated statement of operations as they
occur.

12.Long-term Debt

On May 29,
2003, certain Mexican subsidiaries of the Company entered into a machinery and equipment sale-leaseback financing transaction with GE Mexico. Net cash proceeds were $4,545, net of a security deposit of $2,189. Under the terms of this agreement, the
relevant subsidiaries must maintain certain net worth, earnings before interest, taxes, depreciation and amortization (as defined) and sales levels, in addition to other requirements normally associated with this type of financing. The Company has
accounted for this transaction as a financing transaction in accordance with SFAS No. 66 and SFAS No. 98. Accordingly, the Company has recorded an obligation of $6,734.

13



---

##### Table of Contents

On May 13, 2003, the Company entered into Amendment No. 3 to the Senior Credit Facility for the purpose of modifying certain financial covenants to reflect
several changes to the Companys business, including principally the sale of Tractech and Kraftube and the restructuring charges recorded in the first quarter of 2003. Additionally, the amendment allowed for the financing of certain fixed
assets located in Mexico and certain other modifications.

13.Financial Information for Subsidiary Guarantors and
Non-Guarantor Subsidiaries

The Company conducts a significant portion of its business through its subsidiaries. The Companys 8 5/8% Senior Notes Due 2007, 10 5/8% Senior Subordinated Notes Due 2006 and 11% Senior Subordinated Notes Due 2009 are fully and unconditionally guaranteed,
jointly and severally, by certain direct and indirect subsidiaries of the Company (the Subsidiary Guarantors). Certain of the Companys subsidiaries do not guarantee the 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 June 30, 2003 and December 31, 2002 and for the three-month and the six-month periods ended June 30, 2003 and 2002.

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 based on managements determination that they do not provide additional information that is material to investors.

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



|Guarantor Subsidiaries           |  | Non-Guarantor Subsidiaries                        
|-------------------------------- |  | --------------------------------------------------
|                                 |  |                                                   
|Delco Remy America, Inc.         |  | Delco Remy Hungary KFT (formerly Autovill RT Ltd.)
|Nabco, Inc.                      |  | Delco Remy UK Limited                             
|Power Investments, Inc.          |  | Delco Remy International (Europe) GmbH            
|Franklin Power Products, Inc.    |  | Remy India Holdings, Inc.                         
|International Fuel Systems, Inc. |  | Remy Korea Holdings, Inc.                         
|Power Investments Marine, Inc.   |  | World Wide Automotive Distributors, Inc.          
|Marine Corporation of America    |  | Central Precision Limited                         
|Powrbilt Products, Inc.          |  | Electro Diesel Rebuild BVBA                       
|World Wide Automotive, Inc.      |  | Electro-Rebuild Tunisia S.A.R.L.                  
|Ballantrae Corporation           |  | Delco Remy Mexico, S. de R.L. de C.V.             
|Williams Technologies, Inc.      |  | Publitech, Inc.                                   
|Engine Master, L.P.              |  | Delco Remy Brazil, Ltda.                          
|M & M Knopf Auto Parts, L.L.C.   |  | Delco Remy Remanufacturing, S. de R.L. de C.V.    
|Reman Holdings, L.L.C.           |  | Delco Remy Germany GmbH                           
|Remy International, Inc.         |  | Remy Componentes S. de R. L. de C. V.             
|Jax Reman, L.L.C.                |  | Delco Remy Belgium BVBA                           
|Remy Reman, L.L.C.               |  | Magnum Power Products, L.L.C.                     
|                                 |  | Elmot-DR, Sp.zo.o.                                
|                                 |  | XL Component Distribution Ltd.                    
|                                 |  | AutoMatic Transmission International A/S          
|                                 |  |                                                   

14



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidating Balance
SheetJune 30, 2003(Unaudited)



|                                                     |  | DelcoRemyInternational,Inc.(ParentCompanyOnly) |          | SubsidiaryGuarantors |   | Non-GuarantorSubsidiaries |   | Eliminations |         | Consolidated |  
|---------------------------------------------------- |  | ---------------------------------------------- | -------- | -------------------- | - | ------------------------- | - | ------------ | ------- | ------------ | -
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Assets                                               |  |                                                |          |                      |   |                           |   |              |         |              |  
|Current assets:                                      |  |                                                |          |                      |   |                           |   |              |         |              |  
|Cash and cash equivalents                            |  | $                                              | 1        |                      | $ | (7                        | ) | $            | 10,144  |              |  
|Trade accounts receivable, net                       |  |                                                |         |                      |   | 135,785                   |   |              | 33,180  |              |  
|Other receivables                                    |  |                                                |         |                      |   | 3,727                     |   |              | 9,373   |              |  
|Inventories                                          |  |                                                |         |                      |   | 235,856                   |   |              | 72,904  |              |  
|Deferred income taxes                                |  |                                                | 14,066   |                      |   |                          |   |              | 200     |              |  
|Assets of discontinued operations                    |  |                                                |         |                      |   | 1,551                     |   |              | (908    | )            |  
|Other current assets                                 |  |                                                | 4,547    |                      |   | 1,086                     |   |              | 8,273   |              |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total current assets                                 |  |                                                | 18,614   |                      |   | 377,998                   |   |              | 133,166 |              |  
|Property and equipment                               |  |                                                | 57       |                      |   | 181,842                   |   |              | 112,378 |              |  
|Less accumulated depreciation                        |  |                                                | (42      | )                    |   | (129,548                  | ) |              | (36,203 | )            |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Property and equipment, net                          |  |                                                | 15       |                      |   | 52,294                    |   |              | 76,175  |              |  
|Deferred financing costs, net                        |  |                                                | 15,247   |                      |   |                          |   |              |        |              |  
|Goodwill, net                                        |  |                                                |         |                      |   | 113,937                   |   |              | 6,920   |              |  
|Investments in joint ventures                        |  |                                                | 418,275  |                      |   |                          |   |              |        |              |  
|Deferred income taxes                                |  |                                                | 12,782   |                      |   | 13                        |   |              | (2,565  | )            |  
|Other assets                                         |  |                                                | 9,877    |                      |   | 4,544                     |   |              | 4,812   |              |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total assets                                         |  | $                                              | 474,810  |                      | $ | 548,786                   |   | $            | 218,508 |              | $
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Liabilities and stockholders equity (deficit)       |  |                                                |          |                      |   |                           |   |              |         |              |  
|Current liabilities:                                 |  |                                                |          |                      |   |                           |   |              |         |              |  
|Accounts payable                                     |  | $                                              | 2,680    |                      | $ | 79,588                    |   | $            | 59,420  |              | $
|Intercompany accounts                                |  |                                                | (17,893  | )                    |   | 11,734                    |   |              | 6,760   |              |  
|Accrued interest                                     |  |                                                | 9,730    |                      |   |                          |   |              |        |              |  
|Accrued restructuring charges                        |  |                                                | 83       |                      |   | 13,068                    |   |              | 334     |              |  
|Liabilities of discontinued operations               |  |                                                |         |                      |   | 1,191                     |   |              | 1,049   |              |  
|Other liabilities and accrued expenses               |  |                                                | 15,765   |                      |   | 47,106                    |   |              | 17,579  |              |  
|Current portion of debt                              |  |                                                |         |                      |   | 1,029                     |   |              | 34,704  |              |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total current liabilities                            |  |                                                | 10,365   |                      |   | 153,716                   |   |              | 119,846 |              |  
|Long-term debt, less current portion                 |  |                                                | 577,378  |                      |   | 17,338                    |   |              | 10,212  |              |  
|Post-retirement benefits other than pensions         |  |                                                |         |                      |   | 17,459                    |   |              |        |              |  
|Accrued pension benefits                             |  |                                                |         |                      |   | 16,473                    |   |              |        |              |  
|Accrued restructuring charges                        |  |                                                |         |                      |   | 7,312                     |   |              |        |              |  
|Other non-current liabilities                        |  |                                                | 4,753    |                      |   | 5,526                     |   |              | 1,359   |              |  
|Minority interest in subsidiaries                    |  |                                                |         |                      |   | 6,533                     |   |              | 13,866  |              |  
|Redeemable preferred stock                           |  |                                                | 290,015  |                      |   |                          |   |              |        |              |  
|Stockholders equity:                                |  |                                                |          |                      |   |                           |   |              |         |              |  
|Common stock:                                        |  |                                                |          |                      |   |                           |   |              |         |              |  
|Class A shares                                       |  |                                                |         |                      |   |                          |   |              |        |              |  
|Class B shares                                       |  |                                                | 3        |                      |   |                          |   |              |        |              |  
|Class C shares                                       |  |                                                |         |                      |   |                          |   |              |        |              |  
|Subsidiary investment                                |  |                                                |         |                      |   | 316,201                   |   |              | 63,542  |              |  
|Retained earnings (deficit)                          |  |                                                | (407,704 | )                    |   | 14,944                    |   |              | 17,898  |              |  
|Accumulated other comprehensive loss                 |  |                                                |         |                      |   | (6,716                    | ) |              | (8,215  | )            |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total stockholders equity (deficit)                 |  |                                                | (407,701 | )                    |   | 324,429                   |   |              | 73,225  |              |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total liabilities and stockholders equity (deficit) |  | $                                              | 474,810  |                      | $ | 548,786                   |   | $            | 218,508 |              | $
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  

| | (a) | Elimination of investments in subsidiaries.
| | --- | -------------------------------------------

| | (b) | Elimination of investments in subsidiaries earnings.
| | --- | -----------------------------------------------------

| | (c) | Elimination of intercompany profit in inventory.
| | --- | ------------------------------------------------

15



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidating Balance
SheetDecember 31, 2002



|                                                     |  | DelcoRemyInternational,Inc.(ParentCompanyOnly) |          | SubsidiaryGuarantors |   | Non-GuarantorSubsidiaries |   | Eliminations |         | Consolidated |  
|---------------------------------------------------- |  | ---------------------------------------------- | -------- | -------------------- | - | ------------------------- | - | ------------ | ------- | ------------ | -
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Assets                                               |  |                                                |          |                      |   |                           |   |              |         |              |  
|Current assets:                                      |  |                                                |          |                      |   |                           |   |              |         |              |  
|Cash and cash equivalents                            |  | $                                              | 1        |                      | $ | 163                       |   | $            | 12,262  |              | $
|Trade accounts receivable, net                       |  |                                                |         |                      |   | 114,959                   |   |              | 28,013  |              |  
|Other receivables                                    |  |                                                |         |                      |   | 2,456                     |   |              | 9,138   |              |  
|Inventories                                          |  |                                                |         |                      |   | 229,451                   |   |              | 52,682  |              |  
|Deferred income taxes                                |  |                                                | 14,924   |                      |   | (1,567                    | ) |              | 1,066   |              |  
|Assets of discontinued operations                    |  |                                                |         |                      |   | 20,901                    |   |              | 19,592  |              |  
|Other current assets                                 |  |                                                | 6,039    |                      |   | 1,381                     |   |              | 7,897   |              |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total current assets                                 |  |                                                | 20,964   |                      |   | 367,744                   |   |              | 130,650 |              |  
|Property and equipment                               |  |                                                | 57       |                      |   | 196,135                   |   |              | 93,843  |              |  
|Less accumulated depreciation                        |  |                                                | (36      | )                    |   | (106,989                  | ) |              | (25,970 | )            |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Property and equipment, net                          |  |                                                | 21       |                      |   | 89,146                    |   |              | 67,873  |              |  
|Deferred financing costs, net                        |  |                                                | 17,268   |                      |   |                          |   |              |        |              |  
|Goodwill, net                                        |  |                                                |         |                      |   | 112,042                   |   |              | 6,920   |              |  
|Investments in joint ventures                        |  |                                                | 451,616  |                      |   |                          |   |              |        |              |  
|Deferred income taxes                                |  |                                                | 16,686   |                      |   | (1,012                    | ) |              | (2,661  | )            |  
|Other assets                                         |  |                                                | 9,581    |                      |   | 4,656                     |   |              | 2,159   |              |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total assets                                         |  | $                                              | 516,136  |                      | $ | 572,576                   |   | $            | 204,941 |              | $
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Liabilities and stockholders equity (deficit)       |  |                                                |          |                      |   |                           |   |              |         |              |  
|Current liabilities:                                 |  |                                                |          |                      |   |                           |   |              |         |              |  
|Accounts payable                                     |  | $                                              | 790      |                      | $ | 88,827                    |   | $            | 48,898  |              | $
|Intercompany accounts                                |  |                                                | (9,592   | )                    |   | 37,113                    |   |              | (26,920 | )            |  
|Accrued interest                                     |  |                                                | 9,743    |                      |   |                          |   |              |        |              |  
|Accrued restructuring charges                        |  |                                                |         |                      |   | 4,606                     |   |              | 555     |              |  
|Liabilities of discontinued operations               |  |                                                |         |                      |   | 9,424                     |   |              | 7,820   |              |  
|Other liabilities and accrued expenses               |  |                                                | 7,709    |                      |   | 44,961                    |   |              | 12,812  |              |  
|Current portion of debt                              |  |                                                |         |                      |   | 991                       |   |              | 29,199  |              |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total current liabilities                            |  |                                                | 8,650    |                      |   | 185,922                   |   |              | 72,364  |              |  
|Long-term debt, less current portion                 |  |                                                | 568,710  |                      |   | 17,861                    |   |              | 9,811   |              |  
|Post-retirement benefits other than pensions         |  |                                                |         |                      |   | 23,553                    |   |              |        |              |  
|Accrued pension benefits                             |  |                                                | 454      |                      |   | 13,973                    |   |              |        |              |  
|Accrued restructuring charges                        |  |                                                |         |                      |   | 4,651                     |   |              |        |              |  
|Other non-current liabilities                        |  |                                                | 4,918    |                      |   | 6,405                     |   |              | 962     |              |  
|Minority interest in subsidiaries                    |  |                                                |         |                      |   | 9,456                     |   |              | 8,394   |              |  
|Redeemable preferred stock                           |  |                                                | 274,074  |                      |   |                          |   |              |        |              |  
|Stockholders equity:                                |  |                                                |          |                      |   |                           |   |              |         |              |  
|Common stock:                                        |  |                                                |          |                      |   |                           |   |              |         |              |  
|Class A shares                                       |  |                                                |         |                      |   |                          |   |              |        |              |  
|Class B shares                                       |  |                                                | 3        |                      |   |                          |   |              |        |              |  
|Class C shares                                       |  |                                                |         |                      |   |                          |   |              |        |              |  
|Subsidiary investment                                |  |                                                |         |                      |   | 291,416                   |   |              | 108,650 |              |  
|Retained earnings (deficit)                          |  |                                                | (340,673 | )                    |   | 25,326                    |   |              | 14,841  |              |  
|Accumulated other comprehensive loss                 |  |                                                |         |                      |   | (5,987                    | ) |              | (10,081 | )            |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total stockholders equity (deficit)                 |  |                                                | (340,670 | )                    |   | 310,755                   |   |              | 113,410 |              |  
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  
|Total liabilities and stockholders equity (deficit) |  | $                                              | 516,136  |                      | $ | 572,576                   |   | $            | 204,941 |              | $
|                                                     |  |                                                |          |                      |   |                           |   |              |         |              |  

| | (a) | Elimination of investments in subsidiaries.
| | --- | -------------------------------------------

| | (b) | Elimination of investments in subsidiaries earnings.
| | --- | -----------------------------------------------------

| | (c) | Elimination of intercompany profit in inventory.
| | --- | ------------------------------------------------

16



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidating Statement of
OperationsFor the Three Month Period Ended June 30, 2003(Unaudited)



|                                                                                                                                                                          |  | DelcoRemyInternational,Inc.(ParentCompanyOnly) |         | SubsidiaryGuarantors |   | Non-GuarantorSubsidiaries |   | Eliminations |         | Consolidated |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ------- | -------------------- | - | ------------------------- | - | ------------ | ------- | ------------ | -
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Net sales                                                                                                                                                                 |  | $                                              |        |                      | $ | 281,789                   |   | $            | 144,638 |              | $
|Cost of goods sold                                                                                                                                                        |  |                                                |        |                      |   | 246,670                   |   |              | 128,741 |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Gross profit                                                                                                                                                              |  |                                                |        |                      |   | 35,119                    |   |              | 15,897  |              |  
|Selling, general and administrative expenses                                                                                                                              |  |                                                | 3,553   |                      |   | 17,439                    |   |              | 3,905   |              |  
|Restructuring credit                                                                                                                                                      |  |                                                |        |                      |   | (485                      | ) |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Operating (loss) income                                                                                                                                                   |  |                                                | (3,553  | )                    |   | 18,165                    |   |              | 11,992  |              |  
|Interest expense, net                                                                                                                                                     |  |                                                | (14,278 | )                    |   | (2,034                    | ) |              | (460    | )            |  
|Other non-operating income (expense)                                                                                                                                      |  |                                                |        |                      |   | 44                        |   |              | (354    | )            |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Income (loss) from continuing operations before income taxes (benefit), minority interest, loss from unconsolidated joint ventures and
equity in earnings of subsidiaries |  |                                                | (17,831 | )                    |   | 16,175                    |   |              | 11,178  |              |  
|Income tax expense (benefit)                                                                                                                                              |  |                                                | 8,946   |                      |   | (10,566                   | ) |              | 6,524   |              |  
|Minority interest                                                                                                                                                         |  |                                                |        |                      |   | (209                      | ) |              | (763    | )            |  
|Loss from unconsolidated joint ventures                                                                                                                                   |  |                                                |        |                      |   |                          |   |              | (5,012  | )            |  
|Equity in earnings of subsidiaries                                                                                                                                        |  |                                                | 24,771  |                      |   |                          |   |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Net (loss) income from continuing operations                                                                                                                              |  |                                                | (2,006  | )                    |   | 26,532                    |   |              | (1,121  | )            |  
|Discontinued operations:                                                                                                                                                  |  |                                                |         |                      |   |                           |   |              |         |              |  
|Loss from discontinued operations                                                                                                                                         |  |                                                |        |                      |   | (610                      | ) |              | (30     | )            |  
|Income tax benefit                                                                                                                                                        |  |                                                |        |                      |   |                          |   |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Net loss from discontinued operations                                                                                                                                     |  |                                                |        |                      |   | (610                      | ) |              | (30     | )            |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Net (loss) income                                                                                                                                                         |  |                                                | (2,006  | )                    |   | 25,922                    |   |              | (1,151  | )            |  
|Preferred dividends                                                                                                                                                       |  |                                                | 8,385   |                      |   |                          |   |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Income (loss) attributable to common stockholders                                                                                                                         |  | $                                              | (10,391 | )                    | $ | 25,922                    |   | $            | (1,151  | )            | $
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  

| | (a) | Elimination of intercompany sales and cost of sales.
| | --- | ----------------------------------------------------

| | (b) | Elimination of equity in net income of consolidated subsidiaries.
| | --- | -----------------------------------------------------------------

17



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidating Statement of
OperationsFor the Three Month Period Ended June 30, 2002(Unaudited)



|                                                                                                                                                                          |  | DelcoRemyInternational,Inc.(ParentCompanyOnly) |         | SubsidiaryGuarantors |   | Non- GuarantorSubsidiaries |   | Eliminations |         | Consolidated |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ------- | -------------------- | - | -------------------------- | - | ------------ | ------- | ------------ | -
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|Net sales                                                                                                                                                                 |  | $                                              |        |                      | $ | 274,408                    |   | $            | 107,791 |              | $
|Cost of goods sold                                                                                                                                                        |  |                                                |        |                      |   | 242,510                    |   |              | 93,635  |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|Gross profit                                                                                                                                                              |  |                                                |        |                      |   | 31,898                     |   |              | 14,156  |              |  
|Selling, general and administrative expenses                                                                                                                              |  |                                                | 3,151   |                      |   | 17,281                     |   |              | 4,113   |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|Operating (loss) income                                                                                                                                                   |  |                                                | (3,151  | )                    |   | 14,617                     |   |              | 10,043  |              |  
|Interest expense, net                                                                                                                                                     |  |                                                | (14,193 | )                    |   | (975                       | ) |              | (312    | )            |  
|Other non-operating (expense) income                                                                                                                                      |  |                                                |        |                      |   | (88                        | ) |              | 210     |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|Income (loss) from continuing operations before income taxes (benefit), minority interest, loss from unconsolidated joint ventures and
equity in earnings of subsidiaries |  |                                                | (17,344 | )                    |   | 13,554                     |   |              | 9,941   |              |  
|Income tax (benefit) expense                                                                                                                                              |  |                                                | (8,191  | )                    |   | 7,299                      |   |              | 3,307   |              |  
|Minority interest                                                                                                                                                         |  |                                                |        |                      |   | (612                       | ) |              | (1,120  | )            |  
|Loss from unconsolidated joint ventures                                                                                                                                   |  |                                                |        |                      |   | (1                         | ) |              | (269    | )            |  
|Equity in earnings of subsidiaries                                                                                                                                        |  |                                                | (18,433 | )                    |   |                           |   |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|Net (loss) income from continuing operations                                                                                                                              |  |                                                | (27,586 | )                    |   | 5,642                      |   |              | 5,245   |              |  
|Discontinued operations:                                                                                                                                                  |  |                                                |         |                      |   |                            |   |              |         |              |  
|Loss from discontinued operations                                                                                                                                         |  |                                                |        |                      |   | (14,790                    | ) |              | (19,775 | )            |  
|Income tax benefit                                                                                                                                                        |  |                                                |        |                      |   | (5,744                     | ) |              | 499     |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|Net loss from discontinued operations                                                                                                                                     |  |                                                |        |                      |   | (9,046                     | ) |              | (20,274 | )            |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|Net loss                                                                                                                                                                  |  |                                                | (27,586 | )                    |   | (3,404                     | ) |              | (15,029 | )            |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|Preferred dividends                                                                                                                                                       |  |                                                | 7,623   |                      |   |                           |   |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  
|Loss attributable to common stockholders                                                                                                                                  |  | $                                              | (35,209 | )                    | $ | (3,404                     | ) | $            | (15,029 | )            | $
|                                                                                                                                                                          |  |                                                |         |                      |   |                            |   |              |         |              |  

| | (a) | Elimination of intercompany sales and cost of sales.
| | --- | ----------------------------------------------------

| | (b) | Elimination of equity in net income of consolidated subsidiaries.
| | --- | -----------------------------------------------------------------

18



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidating Statement of
OperationsFor the Six Month Period Ended June 30, 2003(Unaudited)



|                                                                                                                                                                          |  | DelcoRemyInternational,Inc.(ParentCompanyOnly) |         | SubsidiaryGuarantors |   | Non-GuarantorSubsidiaries |   | Eliminations |         | Consolidated |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ------- | -------------------- | - | ------------------------- | - | ------------ | ------- | ------------ | -
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Net sales                                                                                                                                                                 |  | $                                              |        |                      | $ | 546,443                   |   | $            | 279,159 |              | $
|Cost of goods sold                                                                                                                                                        |  |                                                |        |                      |   | 480,915                   |   |              | 250,240 |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Gross profit                                                                                                                                                              |  |                                                |        |                      |   | 65,528                    |   |              | 28,919  |              |  
|Selling, general and administrative expenses                                                                                                                              |  |                                                | 7,615   |                      |   | 34,681                    |   |              | 9,047   |              |  
|Restructuring charges                                                                                                                                                     |  |                                                |        |                      |   | 44,600                    |   |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Operating (loss) income                                                                                                                                                   |  |                                                | (7,615  | )                    |   | (13,753                   | ) |              | 19,872  |              |  
|Interest expense, net                                                                                                                                                     |  |                                                | (28,496 | )                    |   | (1,505                    | ) |              | (887    | )            |  
|Other non-operating income (expense)                                                                                                                                      |  |                                                |        |                      |   | 44                        |   |              | (130    | )            |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Income (loss) from continuing operations before income taxes (benefit), minority interest, loss from unconsolidated joint ventures and
equity in earnings of subsidiaries |  |                                                | (36,111 | )                    |   | (15,214                   | ) |              | 18,855  |              |  
|Income tax expense (benefit)                                                                                                                                              |  |                                                | 7,654   |                      |   | (6,366                    | ) |              | 8,876   |              |  
|Minority interest                                                                                                                                                         |  |                                                |        |                      |   | 355                       |   |              | (1,114  | )            |  
|Loss from unconsolidated joint ventures                                                                                                                                   |  |                                                |        |                      |   |                          |   |              | (5,727  | )            |  
|Equity in earnings of subsidiaries                                                                                                                                        |  |                                                | (7,325  | )                    |   |                          |   |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Net (loss) income from continuing operations                                                                                                                              |  |                                                | (51,090 | )                    |   | (8,493                    | ) |              | 3,138   |              |  
|Discontinued operations:                                                                                                                                                  |  |                                                |         |                      |   |                           |   |              |         |              |  
|Loss from discontinued operations                                                                                                                                         |  |                                                |        |                      |   | (1,889                    | ) |              | (81     | )            |  
|Income tax benefit                                                                                                                                                        |  |                                                |        |                      |   |                          |   |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Net loss from discontinued operations                                                                                                                                     |  |                                                |        |                      |   | (1,889                    | ) |              | (81     | )            |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Net (loss) income                                                                                                                                                         |  |                                                | (51,090 | )                    |   | (10,382                   | ) |              | 3,057   |              |  
|Preferred dividends                                                                                                                                                       |  |                                                | 15,941  |                      |   |                          |   |              |        |              |  
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  
|Income (loss) attributable to common stockholders                                                                                                                         |  | $                                              | (67,031 | )                    | $ | (10,382                   | ) | $            | 3,057   |              | $
|                                                                                                                                                                          |  |                                                |         |                      |   |                           |   |              |         |              |  

| | (a) | Elimination of intercompany sales and cost of sales.
| | --- | ----------------------------------------------------

| | (b) | Elimination of equity in net income of consolidated subsidiaries.
| | --- | -----------------------------------------------------------------

19



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidating Statement of
OperationsFor the Six Month Period Ended June 30, 2002(Unaudited)



|                                                                                                                                                                                                                               |  | Delco RemyInternational, Inc.(ParentCompany Only) |          | SubsidiaryGuarantors |   | Non-GuarantorSubsidiaries |   | Eliminations |         | Consolidated |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------- | -------- | -------------------- | - | ------------------------- | - | ------------ | ------- | ------------ | -
|                                                                                                                                                                                                                               |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net sales                                                                                                                                                                                                                      |  | $                                                 |         |                      | $ | 532,042                   |   | $            | 204,867 |              | $
|Cost of goods sold                                                                                                                                                                                                             |  |                                                   |         |                      |   | 471,586                   |   |              | 176,139 |              |  
|                                                                                                                                                                                                                               |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Gross profit                                                                                                                                                                                                                   |  |                                                   |         |                      |   | 60,456                    |   |              | 28,728  |              |  
|Selling, general and administrative expenses                                                                                                                                                                                   |  |                                                   | 5,795    |                      |   | 33,500                    |   |              | 8,238   |              |  
|Restructuring credits                                                                                                                                                                                                          |  |                                                   |         |                      |   | (4,374                    | ) |              | (1      | )            |  
|                                                                                                                                                                                                                               |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Operating (loss) income                                                                                                                                                                                                        |  |                                                   | (5,795   | )                    |   | 31,330                    |   |              | 20,491  |              |  
|Interest expense, net                                                                                                                                                                                                          |  |                                                   | (26,541  | )                    |   | (2,309                    | ) |              | (506    | )            |  
|Other non-operating (expense) income                                                                                                                                                                                           |  |                                                   |         |                      |   | (88                       | ) |              | 229     |              |  
|                                                                                                                                                                                                                               |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Income (loss) from continuing operations before income taxes (benefit), minority interest, loss from unconsolidated joint ventures,
equity in earnings of subsidiaries and cumulative effect of change in accounting principle |  |                                                   | (32,336  | )                    |   | 28,933                    |   |              | 20,214  |              |  
|Income tax expense (benefit)                                                                                                                                                                                                   |  |                                                   | (10,439  | )                    |   | 10,911                    |   |              | 5,373   |              |  
|Minority interest                                                                                                                                                                                                              |  |                                                   |         |                      |   | (1,117                    | ) |              | (2,418  | )            |  
|Loss from unconsolidated joint ventures                                                                                                                                                                                        |  |                                                   |         |                      |   |                          |   |              | (1,470  | )            |  
|Equity in earnings of subsidiaries                                                                                                                                                                                             |  |                                                   | (78,959  | )                    |   |                          |   |              |        |              |  
|                                                                                                                                                                                                                               |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net (loss) income from continuing operations before cumulative effect of change in accounting principle                                                                                                                        |  |                                                   | (100,856 | )                    |   | 16,905                    |   |              | 10,953  |              |  
|Discontinued operations:                                                                                                                                                                                                       |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Loss from discontinued operations                                                                                                                                                                                              |  |                                                   |         |                      |   | (18,621                   | ) |              | (21,392 | )            |  
|Income tax benefit                                                                                                                                                                                                             |  |                                                   |         |                      |   | (7,372                    | ) |              |        |              |  
|                                                                                                                                                                                                                               |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net loss from discontinued operations                                                                                                                                                                                          |  |                                                   |         |                      |   | (11,249                   | ) |              | (21,392 | )            |  
|Cumulative effect of change in accounting principle                                                                                                                                                                            |  |                                                   |         |                      |   | (55,596                   | ) |              | (18,580 | )            |  
|                                                                                                                                                                                                                               |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net loss                                                                                                                                                                                                                       |  |                                                   | (100,856 | )                    |   | (49,940                   | ) |              | (29,019 | )            |  
|Preferred dividends                                                                                                                                                                                                            |  |                                                   | 14,382   |                      |   |                          |   |              |        |              |  
|                                                                                                                                                                                                                               |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Loss attributable to common stockholders                                                                                                                                                                                       |  | $                                                 | (115,238 | )                    | $ | (49,940                   | ) | $            | (29,019 | )            | $
|                                                                                                                                                                                                                               |  |                                                   |          |                      |   |                           |   |              |         |              |  

(a)Elimination of intercompany sales and cost of sales.

(b)Elimination of equity in
net income of consolidated subsidiaries.

20



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidating Statement of Cash
FlowsFor the Six Month Period Ended June 30, 2003(Unaudited)



|                                                                                                   |  | Delco RemyInternational, Inc.(ParentCompany Only) |         | SubsidiaryGuarantors |   | Non-GuarantorSubsidiaries |   | Eliminations |         | Consolidated |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ------- | -------------------- | - | ------------------------- | - | ------------ | ------- | ------------ | -
|                                                                                                   |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Operating activities:                                                                              |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Net (loss) income                                                                                  |  | $                                                 | (51,090 | )                    | $ | (10,382                   | ) | $            | 3,057   |              | $
|Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Loss from discontinued operations                                                                  |  |                                                   |        |                      |   | 4,306                     |   |              | 81      |              |  
|Gain on disposal of discontinued operations                                                        |  |                                                   |        |                      |   | (2,417                    | ) |              |        |              |  
|Depreciation                                                                                       |  |                                                   | 5       |                      |   | 7,602                     |   |              | 4,451   |              |  
|Amortization                                                                                       |  |                                                   | 498     |                      |   | 62                        |   |              | 182     |              |  
|Minority interest in subsidiaries                                                                  |  |                                                   |        |                      |   | (355                      | ) |              | 1,114   |              |  
|Loss from unconsolidated joint ventures                                                            |  |                                                   |        |                      |   |                          |   |              | 5,727   |              |  
|Equity in earnings of subsidiary                                                                   |  |                                                   | 7,325   |                      |   |                          |   |              |        |              |  
|Deferred income taxes                                                                              |  |                                                   | 1,938   |                      |   |                          |   |              | 1,003   |              |  
|Post-retirement benefits other than pensions                                                       |  |                                                   |        |                      |   | (6,094                    | ) |              |        |              |  
|Accrued pension benefits                                                                           |  |                                                   | (454    | )                    |   | 2,500                     |   |              |        |              |  
|Non-cash interest expense                                                                          |  |                                                   | 2,370   |                      |   |                          |   |              |        |              |  
|Changes in operating assets and liabilities, net of acquisitions:                                  |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Accounts receivable                                                                                |  |                                                   |        |                      |   | (20,826                   | ) |              | (572    | )            |  
|Inventories                                                                                        |  |                                                   |        |                      |   | (6,512                    | ) |              | (18,852 | )            |  
|Accounts payable                                                                                   |  |                                                   | 1,890   |                      |   | (9,239                    | ) |              | 7,821   |              |  
|Intercompany accounts                                                                              |  |                                                   | 8,301   |                      |   | 25,379                    |   |              | (33,680 | )            |  
|Other current assets and liabilities                                                               |  |                                                   | 9,618   |                      |   | 1,394                     |   |              | 1,152   |              |  
|Restructuring changes                                                                              |  |                                                   |        |                      |   | 44,600                    |   |              |        |              |  
|Cash payments for restructuring charges                                                            |  |                                                   |        |                      |   | (11,626                   | ) |              | (224    | )            |  
|Other non-current assets and liabilities, net                                                      |  |                                                   | 10,931  |                      |   | (30,738                   | ) |              | 21,593  |              |  
|                                                                                                   |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Net cash (used in) provided by operating activities of continuing operations                       |  |                                                   | (8,668  | )                    |   | (12,346                   | ) |              | (7,147  | )            |  
|Investing activities:                                                                              |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Acquisitions, net of cash acquired                                                                 |  |                                                   |        |                      |   | (4,460                    | ) |              | (459    | )            |  
|Net proceeds on sale of businesses                                                                 |  |                                                   |        |                      |   | 25,525                    |   |              | 2,351   |              |  
|Purchases of property and equipment                                                                |  |                                                   |        |                      |   | (4,122                    | ) |              | (4,844  | )            |  
|                                                                                                   |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Net cash provided by (used in) investing activities of continuing operations                       |  |                                                   |        |                      |   | 16,943                    |   |              | (2,952  | )            |  
|Financing activities:                                                                              |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Net borrowings (repayments) under revolving line of credit and other                               |  |                                                   | 8,668   |                      |   | (485                      | ) |              | 1,821   |              |  
|Issuance of long-term debt                                                                         |  |                                                   |        |                      |   |                          |   |              | 4,545   |              |  
|                                                                                                   |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Net cash provided by (used in) financing activities of continuing operations                       |  |                                                   | 8,668   |                      |   | (485                      | ) |              | 6,366   |              |  
|Effect of exchange rate changes on cash                                                            |  |                                                   |        |                      |   |                          |   |              | 273     |              |  
|Cash flows of discontinued operations                                                              |  |                                                   |        |                      |   | (4,283                    | ) |              | 1,343   |              |  
|                                                                                                   |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Net (decrease) increase in cash and cash equivalents                                               |  |                                                   |        |                      |   | (171                      | ) |              | (2,117  | )            |  
|Cash and cash equivalents at beginning of period                                                   |  |                                                   | 1       |                      |   | 164                       |   |              | 12,261  |              |  
|                                                                                                   |  |                                                   |         |                      |   |                           |   |              |         |              |  
|Cash and cash equivalents at end of period                                                         |  | $                                                 | 1       |                      | $ | (7                        | ) | $            | 10,144  |              | $
|                                                                                                   |  |                                                   |         |                      |   |                           |   |              |         |              |  

| | (a) | Elimination of equity in earnings of subsidiaries.
| | --- | --------------------------------------------------

21



---

##### Table of Contents

Delco Remy International, Inc. and SubsidiariesCondensed Consolidating Statement of Cash
FlowsFor the Six Month Period Ended June 30, 2002(Unaudited)



|                                                                                                   |  | Delco RemyInternational, Inc.(ParentCompany Only) |          | SubsidiaryGuarantors |   | Non-GuarantorSubsidiaries |   | Eliminations |         | Consolidated |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | -------- | -------------------- | - | ------------------------- | - | ------------ | ------- | ------------ | -
|                                                                                                   |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Operating activities:                                                                              |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net (loss) income                                                                                  |  | $                                                 | (100,856 | )                    | $ | (49,940                   | ) | $            | (29,019 | )            | $
|Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Cumulative effect of change in accounting principle                                                |  |                                                   |         |                      |   | 55,596                    |   |              | 18,580  |              |  
|Loss from discontinued operations                                                                  |  |                                                   |         |                      |   | 5,678                     |   |              | 4,030   |              |  
|Loss on disposal of discontinued operations                                                        |  |                                                   | 5,571    |                      |   | 17,362                    |   |              |        |              |  
|Depreciation                                                                                       |  |                                                   | 6        |                      |   | 9,296                     |   |              | 3,723   |              |  
|Amortization                                                                                       |  |                                                   |         |                      |   |                          |   |              | 72      |              |  
|Equity in earnings of subsidiaries                                                                 |  |                                                   | 78,959   |                      |   |                          |   |              |        |              |  
|Minority interest in subsidiaries                                                                  |  |                                                   |         |                      |   | 1,117                     |   |              | 2,418   |              |  
|Loss from unconsolidated joint ventures                                                            |  |                                                   |         |                      |   |                          |   |              | 1,470   |              |  
|Deferred income taxes                                                                              |  |                                                   | (3,455   | )                    |   |                          |   |              | 1,773   |              |  
|Post-retirement benefits other than pensions                                                       |  |                                                   |         |                      |   | (3,143                    | ) |              |        |              |  
|Accrued pension benefits                                                                           |  |                                                   | (131     | )                    |   | 1,013                     |   |              | (799    | )            |  
|Non-cash interest expense                                                                          |  |                                                   | 1,228    |                      |   | 338                       |   |              |        |              |  
|Changes in operating assets and liabilities, net of acquisitions and non-cash special charges:     |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Accounts receivable                                                                                |  |                                                   |         |                      |   | (24,965                   | ) |              | (4,031  | )            |  
|Inventories                                                                                        |  |                                                   |         |                      |   | 1,976                     |   |              | (6,171  | )            |  
|Accounts payable                                                                                   |  |                                                   | (540     | )                    |   | 10,603                    |   |              | 19,107  |              |  
|Intercompany accounts                                                                              |  |                                                   | 1,853    |                      |   | 16,785                    |   |              | (18,638 | )            |  
|Other current assets and liabilities                                                               |  |                                                   | (10,445  | )                    |   | 23,022                    |   |              | (8,771  | )            |  
|Restructuring credits                                                                              |  |                                                   |         |                      |   | (4,375                    | ) |              | (1      | )            |  
|Cash payments for restructuring charges                                                            |  |                                                   |         |                      |   | (8,608                    | ) |              | (704    | )            |  
|Other non-current assets and liabilities, net                                                      |  |                                                   | (5,109   | )                    |   | (15,349                   | ) |              | 19,224  |              |  
|                                                                                                   |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net cash (used in) provided by operating activities of continuing operations                       |  |                                                   | (32,919  | )                    |   | 36,406                    |   |              | 2,263   |              |  
|Investing activities:                                                                              |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Acquisitions, net of cash acquired                                                                 |  |                                                   |         |                      |   | (7,399                    | ) |              |        |              |  
|Purchases of property and equipment                                                                |  |                                                   |         |                      |   | (5,619                    | ) |              | (3,528  | )            |  
|Investments in joint ventures                                                                      |  |                                                   | (3,000   | )                    |   |                          |   |              |        |              |  
|                                                                                                   |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net cash used in investing activities of continuing operations                                     |  |                                                   | (3,000   | )                    |   | (13,018                   | ) |              | (3,528  | )            |  
|Financing activities:                                                                              |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net borrowings (repayments) under revolving line of credit and other                               |  |                                                   | 42,967   |                      |   | (21,390                   | ) |              | 15,876  |              |  
|Deferred financing costs                                                                           |  |                                                   | (6,803   | )                    |   |                          |   |              |        |              |  
|Distributions to minority interest                                                                 |  |                                                   |         |                      |   |                          |   |              | (1,800  | )            |  
|                                                                                                   |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net cash provided by (used in) financing activities of continuing operations                       |  |                                                   | 36,164   |                      |   | (21,390                   | ) |              | 14,076  |              |  
|Effect of exchange rate changes on cash                                                            |  |                                                   |         |                      |   | 1,652                     |   |              | 273     |              |  
|Cash flows of discontinued operations                                                              |  |                                                   |         |                      |   | (3,684                    | ) |              | (3,019  | )            |  
|                                                                                                   |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Net increase (decrease) in cash and cash equivalents                                               |  |                                                   | 245      |                      |   | (34                       | ) |              | 10,065  |              |  
|Cash and cash equivalents at beginning of period                                                   |  |                                                   |         |                      |   | 115                       |   |              | 22,469  |              |  
|                                                                                                   |  |                                                   |          |                      |   |                           |   |              |         |              |  
|Cash and cash equivalents at end of period                                                         |  | $                                                 | 245      |                      | $ | 81                        |   | $            | 32,534  |              | $
|                                                                                                   |  |                                                   |          |                      |   |                           |   |              |         |              |  

(a)Elimination of equity in earnings of subsidiaries.

22



---

##### Table of Contents

| | Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
| | ------- | -------------------------------------------------------------------------------------

The following managements discussion and
analysis of financial condition and results of operations should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2002, including the financial statements and the notes contained therein.
Results of operations and cash flows for 2003 and 2002 reflect the classification of the Companys retail gas engine business, contract remanufacturing gas engine business, Tractech and Kraftube as discontinued operations.

Results of Operations

In the first quarter of 2003, the Company recorded a restructuring charge totaling $45.1 million
relative to the closure of its starter and alternator manufacturing operations in Anderson, Indiana and electrical aftermarket remanufacturing and distribution facilities in Reed City, Michigan, and the consolidation of its alternator and starter
remanufacturing operations in Mississippi. The majority of this charge relates to the closure of manufacturing facilities in Anderson, Indiana and consisted of employee termination benefits of approximately $13.0 million, a pension and
post-employment benefit net curtailment gain of $5.4 million, the write down of certain fixed assets and accrual of certain contract termination costs totaling $37.3 million and other costs totaling $0.2 million. In the second quarter of 2003, the
Company recorded a net restructuring credit of $0.5 million, consisting of employee termination benefits associated with the aforementioned electrical aftermarket remanufacturing and distribution facilities and reductions in the Companys
remanufactured diesel engine workforce totaling $0.6 million, other miscellaneous costs of $0.2 million, and a $1.3 million credit for the reversal of an impairment charge recorded in the first quarter of 2003 on equipment that the Company
subsequently determined it can utilize in one of its other facilities.

In the first quarter of 2002, the Company recorded a restructuring credit of $4.4 million, consisting of a
post-employment benefit curtailment gain related to employee separation programs associated with the closure and realignment of certain manufacturing operations announced in the fourth quarter of 2001.

As a result of the Companys adoption of SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections (SFAS No. 145), a $1.8 million ($1.1 million after
tax) loss on the early extinguishment of the Companys $200 million revolving credit facility recorded in the second quarter of 2002 has been reclassified from extraordinary items to interest expense and income taxes. Accordingly, interest
expense in the second quarter of 2002 has been increased $1.8 million and income taxes have been reduced $0.7 million from amounts previously reported.

Three Months Ended
June 30, 2003 Compared to Three Months Ended June 30, 2002

Net Sales

Net sales of $272.1
million in the second quarter of 2003 increased $2.2 million, or 0.8%, compared with the second quarter of 2002. Electrical Aftermarket sales increased $8.4 million due to seasonality and new business, partially offset by reduced sales to General
Motors (GM) service parts organization resulting from its efforts to reduce inventory levels. Heavy-duty original equipment manufacturers (OEM) sales declined $3.1 million primarily due to lower customer volume.
Automotive OEM sales decreased $2.6 million primarily due to lower volumes to GM, partially offset by increased non-GM customer demand. Powertrain/drivetrain sales declined $0.4 million primarily due to industry trends affecting the transmission
business, including reductions in service parts inventory by GM and the introduction of more restrictive

23



---

##### Table of Contents

warranty programs at Ford. Third party sales in the core services business decreased marginally by $0.1 million. Consolidated net sales were also positively
impacted by favorable foreign currency exchange rates.

Gross Profit

Gross profit of $51.0 million
in the second quarter of 2003 increased $5.0 million, or 10.8%, compared with the second quarter of 2002, and as a percentage of net sales improved to 18.7% in the second quarter of 2003 compared with 17.1% in the second quarter of 2002. OEM
Heavy-duty and Automotive gross profit increased $2.2 million and $1.3 million, respectively, as lower sales were offset by the initial benefits of the first quarter 2003 cost reduction and restructuring actions. Electrical aftermarket gross profit
increased $1.9 million due to higher sales volume, partially offset by unfavorable product mix. Gross profit on powertrain/drivetrain sales declined $1.2 million due to lower overall sales volume, higher sales of lower margin products in
transmissions and a higher ratio of parts sales to diesel engine sales. Gross profit on core services increased $0.8 million.

Selling, General and Administrative
Expenses

Selling, general and administrative (SG&A) expenses of $24.9 million in the second quarter of 2003 increased $0.4 million from $24.5 million in the
second quarter of 2002. As a percentage of net sales, SG&A expenses were 9.1% in the second quarter of both 2003 and 2002. The year over year increase in spending primarily reflects investments in product engineering, distribution and marketing
programs, mostly offset by overall cost control efforts.

Operating Income

Operating income of $26.6
million in the second quarter of 2003 increased $5.1 million, or 23.7%, compared with $21.5 million in the second quarter of 2002, and as a percentage of sales improved from 8.0% in 2002 to 9.8% in 2003. This growth reflects the sales, gross profit
and SG&A expense items discussed above and the $0.5 million restructuring credit recorded in the second quarter of 2003.

Interest Expense

Interest expense of $16.8 million increased $1.3 million in the second quarter of 2003 compared with the second quarter of 2002. The decrease in interest due to lower interest rates was more than
offset by a net increase in interest costs allocated to continuing operations. Year over year, there was a decrease in interest expense charged to discontinued operations of $2.9 million, partially offset by a $1.8 million loss recorded in the
second quarter of 2002 in connection with the early retirement of the Companys $200 million revolving credit facility.

Income Taxes

Income tax expense of $4.9 million in the second quarter of 2003 consisted entirely of income taxes on foreign earnings. The Company has established a valuation allowance relative to 2003 year-to-date
domestic losses.

24



---

##### Table of Contents

Minority Interest

Minority interest of subsidiaries of $1.0 million in the
second quarter of 2003 compares with $1.7 million in the second quarter of 2002. This decrease reflects the purchase of additional shares from the minority shareholders of World Wide Automotive, Inc. (World Wide), Power Investments, Inc.
(Power) and Delco Remy Korea, partially offset by minority interest relative to Hubei Delphi Automotive Generators Company, Ltd. (Hubei), which was acquired on March 31, 2003.

Loss From Unconsolidated Joint Ventures

The loss from unconsolidated joint ventures of $5.0 million in the second quarter of 2003 compares
with a loss of $0.3 million in the second quarter of 2002. This increase was primarily attributable to the write-off of the Companys remaining investment in iPower Technologies, L.L.C. (iPower).

Loss From Discontinued Operations

The loss from discontinued operations before tax in the second quarter of 2003 of $0.6
million consisted of operating losses in the retail and contract remanufacturing gas engine businesses. The pre-tax loss or $34.6 million in the second quarter of 2002 consisted of the estimated $26.5 million loss on the disposition of the retail
gas engine business, operating losses of $5.2 million and interest expense of $2.9 million.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30,
2002

Net Sales

Net sales of $528.7 million in the first six months of 2003 increased $10.0
million, or 1.9%, compared with the comparable period of 2002. Electrical Aftermarket sales increased $5.4 million due to seasonality and new business wins in the second quarter of 2003, partially offset by reduced sales to GM service parts
organization and, in the first quarter of 2003, retail customer inventory reductions. Powertrain/drivetrain sales increased $2.2 million primarily due to higher transmission sales in the first quarter of 2003, partially offset by reductions in
service parts inventory by GM and the introduction of more restrictive warranty programs at Ford during the second quarter of 2003. Automotive OEM sales increased $2.3 million due to higher sales to GM during the first quarter of 2003 and increased
non-GM customer demand during the second quarter of 2003, partially offset by lower unit volume, primarily on sales to GM, in the second quarter of 2003. Heavy-duty OEM sales declined $2.2 million due primarily to lower customer volume during the
second quarter of 2003, partially offset by higher sales in the first quarter of 2003 reflecting customer promotional programs. Third party sales in the core services business increased $2.3 million. Consolidated net sales were also positively
impacted by favorable foreign currency exchange rates.

Gross Profit

Gross profit of $94.4 million
in the first six months of 2003 increased $5.3 million, or 5.9%, compared with the comparable period of 2002, and as a percentage of net sales improved to 17.9% in the six months of 2003 compared with 17.2% in the six months of 2002. OEM Heavy-duty
and Automotive gross profit increased $6.2 million and $1.2 million, respectively, due to Automotive sales growth and the initial benefits of the first quarter 2003 cost reduction and restructuring actions, partially offset by the negative effect of
strengthening foreign currencies on costs in foreign production facilities during the first quarter of 2003. Electrical aftermarket gross profit declined $1.1 million due to unfavorable product mix, which offset higher

25



---

##### Table of Contents

sales volume. Gross profit on powertrain/drivetrain sales declined $2.6 million due to higher sales of lower margin products in transmissions and a higher
ratio of parts sales to diesel engine sales. Gross profit on core services increased $1.6 million due to sales volume growth.

Selling, General and Administrative
Expenses

SG&A expenses of $51.3 million in the first six months of 2003 increased $3.8 million from $47.5 million in the comparable period of 2002. As a percentage of net
sales, SG&A expenses were 9.7% in the six months of 2003 and 9.2% in the six months of 2002. The year over year increase in spending primarily reflects investments in product engineering, distribution and marketing programs, largely offset by
overall cost control efforts.

Operating Income

An operating loss of $1.5 million in the first six
months of 2003 and operating income of $46.0 million in the comparable period of 2002 reflect the aforementioned restructuring charge of $44.6 million and a credit of $4.4 million, respectively. The change in year over year results also reflects the
realization of the initial benefits of the first quarter cost reduction and restructuring actions in 2003. These benefits more than offset costs, primarily in the first quarter of 2003, arising from the shut down and move of operations and
investments in marketing and product engineering programs primarily related to incremental business awarded in the alternator product line.

Interest Expense

Interest expense of $30.9 million in the first six months of 2003 increased $1.5 million compared with the comparable period of 2002 due to a year over year decrease in interest expense
charged to discontinued operations of $5.6 million and a $0.6 million increase in deferred financing costs relative to the Senior Credit Facility, partially offset by a $3.3 million decrease in interest on the Companys Senior Credit Facility.
Interest expense in 2002 includes a $1.8 million loss recorded in the second quarter in connection with the early retirement of the Companys $200 million revolving credit facility.

Income Taxes

The Company recorded income tax expense of $10.2 million in the first six months of 2003 on a consolidated loss before tax of
$32.5 million. Tax expense consisted of income taxes of $7.3 million on foreign earnings and a $2.9 million provision relative to dividend withholding tax on intercompany dividends that were declared in the first quarter of 2003. The Company has
established a valuation allowance for the deferred tax assets arising from the 2003 domestic losses.

Minority Interest

Minority interest of subsidiaries of $0.8 million in the first six months of 2003 compares with $3.5 million in the comparable period of 2002. This decrease reflects the purchase of additional shares from the minority
shareholders of World Wide, Power and Delco Remy Korea, as well as higher operating costs in certain of the relevant subsidiaries during the first quarter of 2003. Partially offsetting these decreases was minority interest relative to Hubei, which
was acquired on March 31, 2003.

26



---

##### Table of Contents

Loss From Unconsolidated Joint Ventures

The loss from unconsolidated joint
ventures of $5.7 million in the first six months of 2003 compares with $1.5 million in the comparable period of 2002. This increase reflects the write-off of the Companys remaining investment in iPower, partially offset by the termination in
2002 of the Companys joint venture, Continental ISAD Electrical Systems GmbH & Co., formed with Continental AG in 2000.

Loss From Discontinued
Operations

The loss from discontinued operations before tax in the first six months of 2003 consisted of a pre-tax gain on the sale of Tractech and Kraftube of $2.4 million
and operating losses of $4.4 million in the retail and contract remanufacturing gas engine business, Tractech and Kraftube. The sale of Tractech and Kraftube resulted in a capital loss from a tax basis and the resulting deferred tax asset was fully
reserved based on the criteria of SFAS 109. The loss from discontinued operations before tax in the first six months of 2002 consisted of the estimated loss on the disposal of the retail gas engine business of $26.5 million, operating losses of $7.9
million and interest expense of $5.6 million.

Cumulative Effect of Change in Accounting Principle

In accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, the Company recorded a $74.2 million charge to write down goodwill in certain of its operations in the first quarter of 2002. There was no income tax
effect on this charge.

Liquidity and Capital Resources

The Companys short-term liquidity
needs include required debt service, including capital lease payments and repayments of short-term debt, day-to-day operating expenses, working capital requirements, funding of capital expenditures and minority interest buyouts under existing
contractual commitments. Long-term liquidity requirements include principal payments of long-term debt and the funding of acquisitions. The Companys principal sources of cash to fund its short-term liquidity needs consist of cash generated by
operations and borrowings under the Senior Credit Facility. The Company also continues to explore additional funding arrangements, particularly at its international operations. The Company expects that the addition of financing agreements in the
countries where these businesses operate would provide the Company with greater cash management flexibility and would also act as a natural hedge for the net investments.

On May
29, 2003, certain Mexican subsidiaries of the Company entered into a machinery and equipment sale-leaseback financing transaction with GE Mexico. Net cash proceeds were $4.5 million, net of a security deposit of $2.2 million. Under the terms of this
agreement, the relevant subsidiaries must maintain certain net worth, earnings before interest, taxes, depreciation and amortization (as defined) and sales levels, in addition to other requirements normally associated with this type of financing.
The Company has accounted for this transaction as a financing transaction in accordance with SFAS No. 66 and SFAS No. 98. Accordingly, the Company has recorded an obligation of $6.7 million.

On June 28, 2002, the Company entered into the Senior Credit Facility, a $250 million secured, asset based, revolving credit facility with a syndicate of banks led by Wachovia Bank, National Association and its
subsidiary Congress Financial Corporation (the Senior Credit Facility). On May 13, 2003, the Company entered into Amendment No. 3 to the Senior Credit Facility for the purpose of modifying certain financial

27



---

##### Table of Contents

covenants to reflect several changes to the Companys business, including principally the sale of Tractech and Kraftube and the restructuring charges
recorded in the first quarter of 2003. Additionally, the amendment allowed for the financing of certain fixed assets located in Mexico (as discussed above) and certain other modifications. The Senior Credit Facility extends through March 31, 2006
and has provisions for annual extensions thereafter. The Company uses the Senior Credit Facility for general corporate purposes including, but not limited to, general operating and working capital needs.

Instruments governing the Companys indebtedness contain 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 substantially all of its domestic and certain foreign subsidiaries and by the capital stock
of such subsidiaries.

Cash used in operating activities of continuing operations of $28.2 million in the first six months of 2003 compares with cash provided of $5.8 million in
the comparable period of 2002. Cash usage in 2003 includes a $21.4 million increase in accounts receivable reflecting seasonal factors in the business and increased sales to customers with longer terms. This compares with a $29.0 million increase in
the first six months of 2002. Receivables management measured in days of sales outstanding improved in 2003 compared with both the second quarter of 2002 and year-end 2002. Inventories increased $25.4 million in the first six months of 2003 compared
with a $4.2 million increase in the first six months of 2002 due to increases to support the global capacity initiative and restructuring actions and to meet seasonal demand in the Electrical Aftermarket. Cash restructuring payments of $11.9 million
in the first six months of 2003 consisted primarily of employee termination benefits relative to the 2001 and 2003 restructuring actions and facility related cost. Payments of $9.3 million in the first six months of 2002 consisted primarily of
employee termination benefits relative to the 2001 restructuring actions. Offsetting these items in 2003 was a $12.2 million increase in other net current liabilities, including wages and benefits, interest and general accruals from year end, and in
2002, a $29.2 million increase in accounts payable reflecting higher production levels and timing of vendor payments.

Acquisition payments in the first six months of 2003
consisted of the purchase, under contractual put agreements, of increased ownership percentages in World Wide and Power of $4.5 million and a $0.4 million payment on notes relative to the acquisition of certain parts of the Delphi alternator
business in the fourth quarter of 2002. In addition, the Company acquired 51% of Hubei in the first quarter of 2003 for $3.6 million in cash. Cash of $3.6 million was included in the opening balance sheet of this acquisition. Acquisition payments in
the first six months of 2002 consisted of increased ownership percentages in World Wide and Power of $6.9 million and a contingent purchase price payment on the acquisition of Mazda NA of $0.5 million. The Company recorded proceeds on the sale of
Tractech and Kraftube in the first quarter of 2003 of $27.9 million, net of expenses and pending finalization of working capital. Capital expenditures in both 2003 and 2002 were primarily for production, engineering and distribution
equipment.

Net borrowings under the revolving line of credit in both years reflect the funding of net operating and investing activities, net of the change in cash balances. In
the second quarter of 2003, the Company recorded net cash proceeds of $4.5 million relative to the sale-leaseback financing transaction with GE Mexico. The proceeds were used to reduce borrowings under the revolving line of credit. In the first six
months of 2002, the Company made payments totaling $6.8 million for deferred financing costs in conjunction with the

28



---

##### Table of Contents

replacement of the Senior Credit Facility in the second quarter of 2002. Distributions to minority interests in 2002 of $1.8 million consisted of payments to
the former minority shareholders of Delco Remy Korea.

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
also continues to explore additional funding arrangements, particularly at its international operations. The Company expects that the addition of financing agreements in the countries where these businesses operate would provide the Company with
greater cash management flexibility. The Companys future operating performance and ability to extend or refinance its indebtedness will be dependant on future economic conditions and financial, business and other factors that may be beyond the
Companys control. For a description of certain legal proceedings involving the Company, see Footnote 10 to the Condensed Consolidated Financial Statements in Item 1 of this Part I.

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 a description of certain legal proceedings involving the Company, including an
arbitration proceeding, which began in May 2003, see Note 10 to the Condensed Consolidated Financial Statements in Item 1 of this Part I.

Contractual Obligations and
Contingent Liabilities and Commitments

The Companys contractual obligations as of December 31, 2002 are provided in Managements Discussion and Analysis of
Financial Condition and Results of Operations in the Companys Annual Report on Form 10-K for the year ended December 31, 2002. Other than scheduled payments, there were no material changes to these commitments during the six months ended June
30, 2003.

The Company currently expects to make payments of approximately $7.0 million during the next six months for minority interest buy outs under existing contractual
commitments.

In addition to contractual amounts, the Company may also be required to make additional payments in connection with its acquisition of M&M Knopf Autoparts, Inc.,
Delco Remy Mexico, S. de R.L. de C.V. (DRM), Mazda NA and AutoMatic Transmission International A/S. 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.

Cash payments relative to the Companys restructuring actions, including those for expected charges in the last six months of 2003, are currently estimated to
be approximately $12.0 million in the last six months of 2003 and $10.0 million in 2004.

With respect to capital expenditures, the Company expects capital spending in the last
six months of 2003 to approximate $15.0 million.

29



---

##### Table of Contents

Seasonality

The Companys business is moderately seasonal, as its major
OEM customers historically have one to two week operations shutdowns in 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 third and fourth quarter results reflect the effects of these shutdowns.

Foreign
Operations

Approximately 24% of the Companys net sales in the six months ending June 30, 2003 were derived from sales made to customers in foreign countries. The
Company also has manufacturing operations located in certain foreign countries. Because of these foreign sales and manufacturing operations located in foreign countries, 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.

Factors that May
Affect Future Results

From time to time, 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 (the 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 the Managements Discussion and Analysis, Notes to
Condensed Consolidated Financial Statements and other statements made in this Form 10-Q, the Companys Annual Report on Form 10-K for the year ended December 31, 2002, and in other filings with the SEC.

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, dispositions, restructurings, additional financing requirements, development of new products and services, the effect of competitive products or pricing, the effect of
economic conditions, the outcome of legal proceedings and other uncertainties. Due to these uncertainties, the Company cannot assure readers that any forward-looking statements will prove to have been correct.

In connection with the restructuring actions initiated in the first quarter of 2003, the Company currently expects to record additional restructuring charges of approximately $4.0 million to $7.0
million during the last six months of 2003. These actions will also impact other operating expenses during 2003. The benefits of these actions were initially realized beginning late in the first quarter of 2003, and the Company expects that the full
benefit will not be realized until the end of 2004.

The Company currently expects that operating performance in the third quarter of 2003 will be similar to the second quarter of
2003. Declining Automotive OEM sales are expected to be offset by moderate growth in Heavy-duty OEM sales and increased sales of Aftermarket products. Margins should continue to be favorably impacted by savings generated from the first quarter 2003
cost reductions and restructuring actions. These gains, however, are expected to be offset by unfavorable absorption due to the efforts to reduce the inventory that was built up for the global capacity program.

30



---

##### Table of Contents

At June 30, 2003, the Company had unused federal net operating loss carry forwards of approximately $102.1 million that may be carried forward for periods of
fifteen to twenty years and alternative minimum tax credit carry forwards of $2.9 million that may be carried forward indefinitely. A valuation allowance that represents operating loss carry forwards for which utilization is uncertain has been
established. The Company currently believes that future taxable earnings, primarily in the United States, will be adequate to allow for realization of all net deferred tax assets. The valuation allowance will need to be adjusted in the event future
taxable income is materially different than amounts estimated.

| |         |                                                           
| | ------- | ----------------------------------------------------------
| | Item 3. | Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2003, there have been no material changes in the
Companys market risk exposure as described in Item 7A contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2002.

| |         |                        
| | ------- | -----------------------
| | Item 4. | 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 are 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.

31



---

##### Table of Contents

PART II OTHER INFORMATION(dollars in thousands)

| | Item 1. | Legal Proceedings
| | ------- | -----------------

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

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | 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 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 and to sell its 24% interest in exchange for a $13,000 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 had 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 sought damages for breach of
fiduciary duty, breaches of various contracts between and among the various parties, and tortious interference with contractual relations. The damages included a claim of approximately $13,000 for the purchase of GCIDs interest in the Company
and a claim for $17,000 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 for the purchase of its partnership interest in DRM and that GCIS is owed approximately $17,650 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. On March 28, 2003, GCID
and GCIS served revised expert reports claiming that GCID is owed approximately $53,000 for the purchase of its partnership interest in DRM and that GCIS is owed approximately $23,000 under the Service Agreement. On April 25, 2003, the Named Parties
filed an expert report denying GCIDs and GCISs monetary claims and setting forth an alternative calculation of the purchase price for GCIDs interest in the partnership.

On April 23, 2003, the Arbitration Panel dismissed the tortious interference claims and on April 24, 2003, granted the Named Parties motion for leave to file counterclaims against GCID, GCIS and their affiliate,
the partnerships landlord, Sistemas y Componentes Electricos, S.A. de C.V. (SCE). The Named Parties claim DRM and Remy Componentes have overpaid GCIS by approximately $1,800. The Named Parties also seek to enforce the May 3, 2000,
letter of intent and to have certain advances in the amount of approximately $4,000 credited toward the buy out price in the event that the Arbitration Panel concludes that RMH is obligated to purchase GCIDs interest. Subsequently, SCE
asserted counterclaims against DRM and RMH.

32



---

##### Table of Contents

The arbitration hearing began the week of May 19, 2003 and is scheduled to continue the week of August 19, 2003.

The Company disputes all of the claims alleged in both the First and Second Amended Arbitration Demands and the counterclaims asserted by SCE and denies any liability for damages to
GCID or any of its affiliates. The Company believes that it should make a total payment to GCID of approximately $5,500 in exchange for GCIDs 24% interest in DRM, and that the Arbitration Panel should dismiss GCIDs damage claims. GCIS
continues to provide services to DRM. In addition, SCE 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.

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) | On April 16, 2003, the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America (the UAW) and its Local Union 662 filed suit against the Company and Delco Remy America,
Inc. (DRA) in Federal District Court in the Southern District of Indiana, Indianapolis Division. The lawsuit was filed under Section 301 of the Labor Management Relations Act, 29 U.S.C. Sec. 185, seeking enforcement of an expired
Supplemental Unemployment Benefits (SUB) plan. The plaintiffs allege that the SUB plan provides supplemental unemployment benefits for 52 weeks and separation pay in an amount exceeding $20,000 for employees who were terminated as a
result of the closure of DRAs Anderson, Indiana production facilities at the end of March 2003. The plaintiffs also seek to enforce terminated provisions of a Health Care Program which the plaintiffs allege provides the terminated employees
with 25 months of continued hospital, surgical, medical, hearing aid, prescription drug, mental health, substance abuse and vision insurance coverage. The terminated employees were represented by the UAW and its Local Union 662 under various
agreements, which expired on March 31, 2003. The lawsuit was filed shortly after the UAW membership failed to ratify DRAs last, best and final offer for a Shutdown Agreement. The UAW filed an amended complaint on July 8, 2003 to which the
Company filed an answer on July 24, 2003. A case management plan has been approved by the magistrate, and the trial is currently expected to begin in October of 2004. The Company denies the material allegations of the complaint, denies any
wrongdoing and intends to defend itself vigorously.

| |       |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | The Remy Reman facilities in Mississippi identified certain possible violations of state air laws and notified the state environmental agency under the state voluntary audit disclosure rules. The state requested further
information regarding the disclosure and the subsidiary responded to the information requests in April of 2003. The facilities are currently in compliance with the air permit requirements.

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) | In April 2003, the Virginia Department of Environmental Quality issued a warning letter with respect to similar possible violations voluntarily disclosed to them with respect to the World Wide facility in Virginia. The
necessary permit application was submitted, the permit was issued, and no further corrective action is necessary. Because the violation has been corrected, and based on the states enforcement practice manual, we do not believe state
environmental agency intends to pursue enforcement or penalty actions for the past violations. However, if any such claim were pursued, the Company does not believe that the costs of such matters, if any, will have a material adverse effect on the
Companys results of operations, business or financial condition.

33



---

##### Table of Contents

| | Item 2. | Changes in Securities and Use of Proceeds
| | ------- | -----------------------------------------

None.



| | Item 3. | Defaults Upon Senior Securities
| | ------- | -------------------------------

Not applicable.



| | Item 4. | Submission of Matters to a Vote of Security Holders
| | ------- | ---------------------------------------------------

None.



| | Item 5. | Other Information
| | ------- | -----------------

None.



| | Item 6. | Exhibits and Reports on Form 8-K
| | ------- | --------------------------------

| |     |         
| | --- | --------
| | (a) | Exhibits

| |      |                                                                                                                       
| | ---- | ----------------------------------------------------------------------------------------------------------------------
| | 31.1 | Certification by Thomas J. Snyder, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

| |      |                                                                                                                     
| | ---- | --------------------------------------------------------------------------------------------------------------------
| | 31.2 | Certification by Rajesh K. Shah, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

| |      |                                                                                                                                                                      
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 32.1 | Certification by Thomas J. Snyder, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

| |      |                                                                                                                                                                    
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 32.2 | Certification by Rajesh K. Shah, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

| |     |                      
| | --- | ---------------------
| | (b) | Report(s) on Form 8-K

| |     |                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Report dated May 8, 2003, disclosing that the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America (the UAW) and its Local Union 662 had filed suit against the
Registrant and Delco Remy America, Inc. (DRA), a wholly owned subsidiary of the Registrant, in Federal District Court in the Southern District of Indiana.

| |     |                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Report dated May 13, 2003, containing amendment No. 3 dated as of May 13, 2003, to the loan and security agreement dated as of June 28, 2002.

| |     |                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------
| | (3) | Report dated May 14, 2003, containing the press release dated May 13, 2003, announcing the 2003 first quarter results.

34



---

##### Table of Contents

SIGNATURES

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



| |  | DELCO REMY INTERNATIONAL, INC.
| |  | ------------------------------
| |  |                               
| |  | (Registrant)                  



|                     |  |    
|-------------------- |  | ---
|Date: August 8, 2003 |  | By:
|                     |  |    
|                     |  |    



|                     |  |    
|-------------------- |  | ---
|Date: August 8, 2003 |  | By:
|                     |  |    
|                     |  |    

35



---

##### Table of Contents

EXHIBIT INDEX



|Exhibit No. | Description                                                                                                                                                          
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                                      
|31.1        | Certification by Thomas J. Snyder, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            |                                                                                                                                                                      
|31.2        | Certification by Rajesh K. Shah, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                 
|            |                                                                                                                                                                      
|32.1        | Certification by Thomas J. Snyder, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|            |                                                                                                                                                                      
|32.2        | Certification by Rajesh K. Shah, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  
|            |                                                                                                                                                                      

36