10-Q

UNITED STATES

SECURITIES 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 September 30, 2003

or

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

FOR THE TRANSITION PERIOD FROM                      TO                     .

COMMISSION FILE NO. 1-13683

DELCO REMY INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	35-1909253
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2902 Enterprise Drive Anderson, Indiana	46013
(Address of principal executive offices)	(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  ¨

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN EXCHANGE ACT RULE 12B-2).    Yes  ¨    No  x

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

	Outstanding as of October 15, 2003
Common Stock—Class A Common Stock—Class B Common Stock—Class C	1,000.00  2,485,337.49       16,687.00

Delco Remy International, Inc. and Subsidiaries

INDEX

		Page
PART I    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	26
Item 3	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4	Controls and Procedures	35
PART II  OTHER INFORMATION
Item 1	Legal Proceedings	36
Item 2	Changes in Securities and Use of Proceeds	38
Item 3	Defaults Upon Senior Securities	38
Item 4	Submission of Matters to a Vote of Security Holders	38
Item 5	Other Information	38
Item 6	Exhibits and Reports on Form 8-K.	38
SIGNATURES		39
EXHIBIT INDEX		40

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

	September 30, 2003			December 31, 2002
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	12,040		$	12,426
Trade accounts receivable, net		164,330			142,972
Other receivables		13,114			11,594
Inventories		303,792			281,024
Deferred income taxes		13,624			14,423
Assets of discontinued operations		—			40,493
Other current assets		15,853			15,317
Total current assets		522,753			518,249
Property and equipment		301,170			290,035
Less accumulated depreciation		(172,155	)		(132,995	)
Property and equipment, net		129,015			157,040
Deferred financing costs, net		14,347			17,268
Goodwill, net		121,391			118,962
Investments in joint ventures		6,167			11,891
Deferred income taxes		10,101			13,013
Other assets		21,108			16,396
Total assets	$	824,882		$	852,819
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	137,573		$	138,515
Accrued interest		13,770			9,743
Accrued restructuring charges		12,095			5,161
Liabilities of discontinued operations		—			17,244
Other liabilities and accrued expenses		83,885			65,482
Current portion of debt		35,869			30,190
Total current liabilities		283,192			266,335
Long-term debt, less current portion		598,733			596,382
Post-retirement benefits other than pensions		17,713			23,553
Accrued pension benefits		15,943			14,427
Accrued restructuring charges		7,682			4,651
Other non-current liabilities		11,061			12,285
Commitments and contingencies
Minority interest in subsidiaries		20,284			17,850
Redeemable preferred stock		298,492			274,074
Stockholders’ deficit:
Common stock:
Class A shares		—			—
Class B shares		3			3
Class C shares		—			—
Retained deficit		(413,540	)		(340,673	)
Accumulated other comprehensive loss		(14,681	)		(16,068	)
Total stockholders’ deficit		(428,218	)		(356,738	)
Total liabilities and stockholders’ deficit	$	824,882		$	852,819

See Notes to Condensed Consolidated Financial Statements

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Delco Remy International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands)

	Three Month Period Ended September 30						Nine Month Period Ended September 30
	2003			2002			2003			2002
Net sales	$	263,525		$	257,799		$	792,227		$	776,497
Cost of goods sold		214,239			213,782			648,494			643,298
Gross profit		49,286			44,017			143,733			133,199
Selling, general and administrative expenses		24,382			24,874			75,811			72,266
Restructuring charges (credits)		2,663			—			47,263			(4,375	)
Operating income		22,241			19,143			20,659			65,308
Interest expense, net		(15,518	)		(12,889	)		(46,406	)		(42,245	)
Income (loss) from continuing operations before income taxes, minority interest, loss from unconsolidated joint ventures and cumulative effect of change in accounting principle		6,723			6,254			(25,747	)		23,063
Income tax expense		1,958			2,190			12,122			8,035
Minority interest		(1,466	)		(1,286	)		(2,225	)		(4,821	)
Loss from unconsolidated joint ventures		(182	)		(1,230	)		(5,909	)		(2,700	)
Net income (loss) from continuing operations before cumulative effect of change in accounting principle		3,117			1,548			(46,003	)		7,507
Discontinued operations:
Loss from discontinued operations, net of tax		(476	)		(12,556	)		(4,863	)		(22,265	)
Gain (loss) on disposal of businesses, net of tax		—			(3,539	)		2,417			(26,472	)
Loss from discontinued operations		(476	)		(16,095	)		(2,446	)		(48,737	)
Cumulative effect of change in accounting principle, net		—			—			—			(74,176	)
Net income (loss)		2,641			(14,547	)		(48,449	)		(115,406	)
Accretion for redemption of preferred stock		8,477			7,427			24,418			21,809
Net loss attributable to common stockholders	$	(5,836	)	$	(21,974	)	$	(72,867	)	$	(137,215	)

See Notes to Condensed Consolidated Financial Statements

4

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine Month Period Ended September 30
	2003			2002
Operating activities:
Net loss attributable to common stockholders	$	(72,867	)	$	(137,215	)
Adjustments to reconcile net loss attributable to common stockholders to net cash (used in) provided by operating activities:
Cumulative effect of change in accounting principle		—			74,176
Loss from discontinued operations		4,863			22,265
Loss (gain) on disposal of businesses		(2,417	)		26,472
Depreciation		16,974			19,462
Amortization		1,091			402
Accretion for redemption of preferred stock		24,418			21,809
Minority interest in subsidiaries		2,225			4,821
Loss from unconsolidated joint ventures		5,909			2,700
Deferred income taxes		3,737			2,238
Post-retirement benefits other than pensions		(5,840	)		(2,259	)
Accrued pension benefits		1,516			(944	)
Non-cash interest expense		3,770			2,663
Changes in operating assets and liabilities, net of acquisitions and restructuring charges:
Accounts receivable		(16,763	)		(23,389	)
Inventories		(21,399	)		(5,225	)
Accounts payable		(3,643	)		5,216
Other current assets and liabilities		17,225			14,533
Restructuring charges (credits)		47,263			(4,375	)
Cash payments for restructuring charges		(14,392	)		(13,806	)
Other non-current assets and liabilities, net		(3,550	)		(159	)
Net cash (used in) provided by operating activities of continuing operations		(11,880	)		9,385
Investing activities:
Acquisitions, net of cash acquired		(9,546	)		(13,918	)
Net proceeds on sale of businesses		27,876			—
Purchases of property and equipment		(15,032	)		(13,474	)
Investments in joint ventures		—			(3,000	)
Net cash provided by (used in) investing activities of continuing operations		3,298			(30,392	)
Financing activities:
Proceeds from issuance of long-term debt		6,521			144,769
Retirement of long-term debt		—			(144,769	)
Net borrowings under revolving line of credit and other		4,617			37,889
Deferred financing costs		—			(8,011	)
Distributions to minority interests		—			(1,800	)
Net cash provided by financing activities of continuing operations		11,138			28,078
Effect of exchange rate changes on cash		352			1,282
Cash flows of discontinued operations		(3,294	)		(20,382	)
Net decrease in cash and cash equivalents		(386	)		(12,029	)
Cash and cash equivalents at beginning of period		12,426			22,584
Cash and cash equivalents at end of period	$	12,040		$	10,555

See Notes to Condensed Consolidated Financial Statements

5

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 accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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 nine-month periods ended September 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 accounting principles generally accepted in the United States 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:

	September 30, 2003		December 31, 2002
Raw material	$	165,965	$	149,854
Work-in-process		33,198		42,675
Finished goods		104,629		88,495
Total	$	303,792	$	281,024

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

	Foreign Currency Translation Adjustment			Unrealized Gains (Losses) on Currency Instruments			Minimum Pension Liability Adjustments			Accumulated Other Comprehensive Loss
Balance at December 31, 2002	$	(10,469	)	$	335		$	(5,934	)	$	(16,068	)
Loss before tax		(1,196	)		(398	)		—			(1,594	)
Income tax effect		(395	)		(63	)		—			(458	)
Other comprehensive loss		(801	)		(335	)		—			(1,136	)
Balance at March 31, 2003		(11,270	)		—			(5,934	)		(17,204	)
Income before tax		3,393			—			—			3,393
Income tax effect		1,120			—			—			1,120
Other comprehensive income		2,273			—			—			2,273
Balance at June 30, 2003		(8,997	)		—			(5,934	)		(14,931	)
Income before tax		373			—			—			373
Income tax effect		123			—			—			123
Other comprehensive income		250			—			—			250
Balance at September 30, 2003	$	(8,747	)	$	—		$	(5,934	)	$	(14,681	)

The Company’s total comprehensive loss is derived as follows:

	Three Month Period Ended September 30					Nine Month Period Ended September 30
		2003		2002			2003			2002
Net income (loss)	$	2,641	$	(14,547	)	$	(48,449	)	$	(115,406	)
Other comprehensive income		250		2,068			1,387			11,445
Total comprehensive income (loss)	$	2,891	$	(12,479	)	$	(47,062	)	$	(103,961	)

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, Accounting for Costs Associated with Exit or Disposed Activities (“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 and a $1,835 pension plan curtailment charge, and is net of a curtailment gain of $7,216 relative to the post-employment benefit plan.

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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 determined could be utilized in one of its other facilities.

In the third quarter of 2003, the Company recorded a restructuring charge of $2,663 consisting of employee termination benefits of $1,149, asset impairments of $1,058 and other items of $456 associated with closure of the Anderson, Indiana starter and alternator and Reed City, Michigan facilities and consolidation of its alternator and starter remanufacturing operations in Mississippi.

Relative to the 2003 employee termination benefit charges, a total of $2,061, $3,703 and $2,113 were paid in the first, second, and third quarters of 2003, respectively, and $289 and $6,566 are expected to be paid in the last quarter of 2003 and in 2004, respectively.

Additional restructuring charges of between $3,000 and $5,000 associated with these actions are expected to be recorded during the fourth quarter of 2003.

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 (including discontinued operations) 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, and $4,962 were paid in 2001, 2002 and the first three quarters of 2003, respectively, and the remainder of approximately $4,282 is expected to be paid in 2004.

In May 2000, the Company recorded a charge of $35,222 (including discontinued operations) 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 (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 nine months ended September 30, 2003 and approximately $105 is expected to be paid in the last three 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 three quarters of 2003 in connection with the Company’s plans to exit its contract remanufacturing operation for gas engines in Beaumont, Texas (see Note 8).

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

8

estimated cost of various voluntary and involuntary employee separation programs associated with workforce reductions of approximately 165 production and administrative employees. Payments of $300 and $508 were made in 2002 and the first three quarters of 2003, respectively, and the remainder of $245 is expected to be paid during the fourth quarter of 2003. The charge also included $1,771 for the estimated cost of closing facilities.

The following table summarizes the reserve for restructuring charges for the nine months ended September 30, 2003:

	Termination Benefits			Exit/Impairment Costs			Total
Reserve at December 31, 2002	$	10,652		$	2,994		$	13,646	(a)
Payments and charges		(13,742	)		(26,985	)		(40,727	)
Provisions		14,922			32,730			47,652	(b)
Reserve at September 30, 2003	$	11,832		$	8,739		$	20,571	(a)

(a) Includes $3,834 and $794 classified as liabilities of discontinued operations at December 31, 2002 and September 30, 2003, respectively.

(b) Includes $389 classified as loss from discontinued operations.

5. Recently Issued Accounting Standards

In 2001, the Financial Accounting Standards 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 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. 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, is 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

9

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. In 2002, the Emerging Issues Task Force (EITF) reached a consensus on EITF issue No. 00-21, “Revenue Arrangements With Multiple Deliverables,” (Issue 00-21). Issue 00-21 provides guidance for determining the unit(s) of accounting in arrangements that include multiple products, services, and/or rights to use assets. The provisions of Issue 00-21 are applicable to agreements entered into for reporting periods beginning after June 15, 2003. Adoption of this consensus did not have a material impact on the Company’s consolidated financial position or results of operations.

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”). SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133 and is to be applied prospectively to contracts entered into or modified after June 30, 2003. The Company adopted SFAS No. 149 in the third quarter of 2003. Adoption of this statement did not have a material impact on the Company’s consolidated financial position or results of operation.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS No. 150”). SFAS No. 150 established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Adoption of SFAS No. 150 did not have an impact on the Company’s consolidated financial position or results of operations.

In 2003, the FASB issued FASB Interpretation (FIN) 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 defines a variable interest entity (VIE) as a corporation, partnership, trust, or any other legal structure that does not have equity investors with a controlling financial interest or has equity investors that do no provide sufficient financial resources for the entity to support its activities. FIN 46 requires consolidation of a VIE by the primary beneficiary of the assets, liabilities, and results of activities. FIN 46 also requires certain disclosures by all holders of a significant variable interest in a VIE that are not the primary beneficiary. FIN 46 is effective for periods ending after December 15, 2003. The Company does not currently have any material investments in variable interest entities; therefore, the adoption of this interpretation is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

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6. Redeemable Preferred Stock

Holders of substantially all of the Company’s common stock and Series A Preferred Stock (the “Preferred Stock”) agreed, effective as of July 1, 2003, to amend the terms of the Company’s outstanding Preferred Stock.

Pursuant to the amended terms, the Preferred Stock has a stated value of $100 per share and is entitled to receive dividends when, as and if declared by the Board of Directors in such amounts as the Board of Directors may determine at the time of declaration, provided that the aggregate amount of dividends per share do not exceed the compounded annual rate of 12% of the stated value per share from the date of original issue.

The Preferred Stock is redeemable at the option of the holders of the Preferred Stock or the Company on and after December 16, 2023. The holders of the Preferred Stock are entitled to a preference amount per share upon liquidation. The redemption price and the liquidation preference per share are equal to the stated value, plus an accreted amount equal to the stated value multiplied by 12% per annum, compounded annually from the date of original issue, less any dividends declared and paid thereon.

The Preferred Stock is convertible at the option of the Company concurrently with the Company’s first qualified public offering of common stock. Subject to certain exceptions, the Company may not pay any dividend upon capital stock junior to the Preferred Stock, except for a dividend payable in capital stock junior to the Preferred Stock (including the common stock or junior stock), or redeem or otherwise acquire shares of junior stock, unless the Company has declared and paid dividends on the Preferred Stock in an accreted amount equal to the stated value of the Preferred Stock multiplied by 12% per annum, compounded annually from the date of original issue, less any dividends declared and paid thereon. The number of shares of common stock deliverable upon conversion of a share of preferred stock equals the stated value, plus an accreted amount equal to the stated value multiplied by 12% per annum, compounded annually from the date of original issue, less any dividends declared and paid thereon, divided by the net proceeds per share of common stock received, after giving effect to underwriting discounts, by the Company in the offering.

The amount accreted on the Preferred Stock since the issue date is reported as “Accretion for redemption of preferred stock” on the Condensed Consolidated Statements of Operations. The dividends accrued on the Preferred Stock prior to the adoption of the restated terms were never declared or paid to the holders of the Preferred Stock and are also reported as “Accretion for redemption of preferred stock.”

7. Divestiture of Non-Core Businesses

In March 2003, the Company successfully completed the sale of two non-core businesses, Tractech and Kraftube, which were engaged in the manufacture 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.

8. Acquisitions

During the nine months ended September 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

11

acquired were $8,100 ($3,800 net of minority interest), including cash of $3,600. In 1999, the Company acquired a majority of the stock of Delco Remy Korea. During the nine months ended September 30, 2003, the Company made a payment of $2,648 on notes issued in 2002 in connection with the Company’s acquisition of the remaining shares from the minority shareholders of Delco Remy Korea. During the nine months ended September 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 $3,375 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 97.7%. 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.

9. 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 businesses. 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 treatment 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. Charges of $428 for the write down of assets and $190 for employee separation programs was charged to discontinued operations in the first and second quarters of 2003, respectively, relative to the exit of operations at the Beaumont facility.

In the second quarter of 2002, the Company concluded that its retail aftermarket gas engine business did not fit with its strategic objectives and completed plans to exit the business. In connection with the discontinuance of the business, charges of $26,472 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 third quarter of 2002 for the estimated cost of employee termination benefits and closure of facilities (see 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.

Selected income statement information for discontinued operations is as follows:

	Three Month Period Ended September 30						Nine Month Period Ended September 30
	2003			2002			2003			2002
Net sales	$	58		$	12,785		$	9,709		$	43,496
Loss before tax		(476	)		(10,089	)		(4,863	)		(23,629	)
Income tax (expense) benefit		—			(2,467	)		—			1,364
Net loss	$	(476	)	$	(12,556	)	$	(4,863	)	$	(22,265	)

12

10. Income Taxes

The effective tax rate for the nine months ended September 30, 2002 reflects the U.S. statutory rate (35%), adjusted for state income taxes and the tax impact from foreign operations. The effective tax rate for the nine months ended September 30, 2003 does not reflect the U.S. 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.

11. 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 two 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 DRM and a claim for $17,000 for the alleged breach of a Service Agreement between DRM 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.

13

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 concluded on September 24, 2003. The parties are scheduled to submit post-hearing briefs by December 2, 2003 and the arbitration panel is scheduled to hear oral argument on January 6, 2004. The arbitration panel is expected to render a decision on all matters sometime after the oral argument.

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 landlord 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 twenty thousand dollars 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 2004. The Company denies the material allegations of the complaint, denies any wrongdoing and intends to defend itself vigorously, but is unable to predict whether the proceedings will have a material adverse effect on the Company.

(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 Remy Reman responded to the information requests in April 2003. The facilities are currently in compliance with the air permit requirements. The

14

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.

(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, the Company does not believe that the 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., DRM, 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 $30,000 to $35,000, payable in 2003 to 2006. In addition, the Company expects to make payments of $2.5 million and $5.0 million in the fourth quarter of 2003 and in 2004, respectively, on notes issued in connection with the acquisition of Delco Remy Korea.

12. 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.

13. 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. On September 26, 2003, the Company completed another round of equipment annexes under the previously mentioned sale-leaseback financing transaction with GE Mexico. Net proceeds from this transaction were $1,977, net of a security deposit of $1,111. The Company has accounted for these transactions as financing transactions in accordance with SFAS No. 66 and SFAS No. 98. Accordingly, the Company has recorded an obligation of $9,822 for the May 29 and September 26, 2003 transactions.

15

On May 13, 2003, the Company entered into Amendment No. 3 to its 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.

See Note 15 for a discussion of amendments and restatements to the Company’s senior credit facility effective October 3, 2003.

14. 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 September 30, 2003 and December 31, 2002 and for the three-month and the nine-month periods ended September 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

16

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

September 30, 2003

(Unaudited)

	Delco Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	297		$	87		$	11,656			—		$	12,040
Trade accounts receivable, net		—			131,428			32,902			—			164,330
Other receivables		—			3,351			9,763			—			13,114
Inventories		—			234,898			70,012			(1,118	)(c)		303,792
Deferred income taxes		14,066			—			(442	)		—			13,624
Other current assets		6,264			1,218			8,371			—			15,853
Total current assets		20,627			370,982			132,262			(1,118	)		522,753
Property and equipment		57			185,084			116,029			—			301,170
Less accumulated depreciation		(45	)		(132,897	)		(39,213	)		—			(172,155	)
Property and equipment, net		12			52,187			76,816			—			129,015
Deferred financing costs, net		14,347			—			—			—			14,347
Goodwill, net		—			114,471			6,920			—			121,391
Investments in joint ventures		430,035			—			—			(423,868	)(a)		6,167
Deferred income taxes		12,782			13			(2,694	)		—			10,101
Other assets		10,253			4,617			6,238			—			21,108
Total assets	$	488,056		$	542,270		$	219,542		$	(424,986	)	$	824,882
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	1,558		$	74,687		$	61,328		$	—		$	137,573
Intercompany accounts		(2,302	)		(1,415	)		4,318			(601	)(c)		—
Accrued interest		13,672			—			98			—			13,770
Accrued restructuring charges		—			11,449			646			—			12,095
Other liabilities and accrued expenses		17,733			51,652			14,500			—			83,885
Current portion of debt		—			1,061			34,808			—			35,869
Total current liabilities		30,661			137,434			115,698			(601	)		283,192
Long-term debt, less current portion		568,419			17,068			13,246			—			598,733
Post-retirement benefits other than pensions		—			17,713			—			—			17,713
Accrued pension benefits		—			15,943			—			—			15,943
Accrued restructuring charges		—			7,682			—			—			7,682
Other non-current liabilities		4,021			5,540			1,500			—			11,061
Minority interest in subsidiaries		—			5,891			14,393			—			20,284
Redeemable preferred stock		298,492			—			—			—			298,492
Stockholders’ equity (deficit):
Common stock:
Class A shares		—			—			—			—			—
Class B shares		3			—			—			—			3
Class C shares		—			—			—			—			—
Subsidiary investment		—			316,201			63,542			(379,743	)(a)		—
Retained earnings (deficit)		(413,540	)		25,894			18,748			(44,642	)(b)		(413,540	)
Accumulated other comprehensive loss		—			(7,096	)		(7,585	)		—			(14,681	)
Total stockholders’ equity (deficit)		(413,537	)		334,999			74,705			(424,385	)		(428,218	)
Total liabilities and stockholders’ equity (deficit)	$	488,056		$	542,270		$	219,542		$	(424,986	)	$	824,882

(a) Elimination of investments in subsidiaries.

(b) Elimination of investments in subsidiaries’ earnings.

(c) Elimination of intercompany profit in inventory.

17

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

December 31, 2002

	Delco Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1		$	163		$	12,262		$	—		$	12,426
Trade accounts receivable, net		—			114,959			28,013			—			142,972
Other receivables		—			2,456			9,138			—			11,594
Inventories		—			229,451			52,682			(1,109	)(c)		281,024
Deferred income taxes		14,924			(1,567	)		1,066			—			14,423
Assets of discontinued operations		—			20,901			19,592			—			40,493
Other current assets		6,039			1,381			7,897			—			15,317
Total current assets		20,964			367,744			130,650			(1,109	)		518,249
Property and equipment		57			196,135			93,843			—			290,035
Less accumulated depreciation		(36	)		(106,989	)		(25,970	)		—			(132,995	)
Property and equipment, net		21			89,146			67,873			—			157,040
Deferred financing costs, net		17,268			—			—			—			17,268
Goodwill, net		—			112,042			6,920			—			118,962
Investments in joint ventures		451,616			—			—			(439,725	)(a)		11,891
Deferred income taxes		16,686			(1,012	)		(2,661	)		—			13,013
Other assets		9,581			4,656			2,159			—			16,396
Total assets	$	516,136		$	572,576		$	204,941		$	(440,834	)	$	852,819
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	790		$	88,827		$	48,898		$	—		$	138,515
Intercompany accounts		(9,592	)		37,113			(26,920	)		(601	)(c)		—
Accrued interest		9,743			—			—			—			9,743
Accrued restructuring charges		—			4,606			555			—			5,161
Liabilities of discontinued operations		—			9,424			7,820			—			17,244
Other liabilities and accrued expenses		7,709			44,961			12,812			—			65,482
Current portion of debt		—			991			29,199			—			30,190
Total current liabilities		8,650			185,922			72,364			(601	)		266,335
Long-term debt, less current portion		568,710			17,861			9,811			—			596,382
Post-retirement benefits other than pensions		—			23,553			—			—			23,553
Accrued pension benefits		454			13,973			—			—			14,427
Accrued restructuring charges		—			4,651			—			—			4,651
Other non-current liabilities		4,918			6,405			962			—			12,285
Minority interest in subsidiaries		—			9,456			8,394			—			17,850
Redeemable preferred stock		274,074			—			—			—			274,074
Stockholders’ equity (deficit):
Common stock:
Class A shares		—			—			—			—			—
Class B shares		3			—			—			—			3
Class C shares		—			—			—			—			—
Subsidiary investment		—			291,416			108,650			(400,066	)(a)		—
Retained earnings (deficit)		(340,673	)		25,326			14,841			(40,167	)(b)		(340,673	)
Accumulated other comprehensive loss		—			(5,987	)		(10,081	)		—			(16,068	)
Total stockholders’ equity (deficit)		(340,670	)		310,755			113,410			(440,233	)		(356,738	)
Total liabilities and stockholders’ equity (deficit)	$	516,136		$	572,576		$	204,941		$	(440,834	)	$	852,819

(a) Elimination of investments in subsidiaries.

(b) Elimination of investments in subsidiaries’ earnings.

(c) Elimination of intercompany profit in inventory.

18

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidating Statement of Operations

For the Three Month Period Ended September 30, 2003

(Unaudited)

	Delco Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	261,841		$	136,992		$	(135,308	)(a)	$	263,525
Cost of goods sold		—			221,943			127,604			(135,308	)(a)		214,239
Gross profit		—			39,898			9,388			—			49,286
Selling, general and administrative expenses		2,494			16,867			5,021			—			24,382
Restructuring charges		—			2,029			634			—			2,663
Operating (loss) income		(2,494	)		21,002			3,733			—			22,241
Interest expense, net		(14,388	)		(640	)		(490	)		—			(15,518	)
Income (loss) from continuing operations before income taxes (benefit), minority interest, loss from unconsolidated joint ventures and equity in earnings of subsidiaries		(16,882	)		20,362			3,243			—			6,723
Income tax (benefit) expense		(7,724	)		8,224			1,458			—			1,958
Minority interest		—			(803	)		(663	)		—			(1,466	)
Loss from unconsolidated joint ventures		—			—			(182	)		—			(182	)
Equity in earnings of subsidiaries		11,799			—			—			(11,799	)(b)		—
Net (loss) income from continuing operations		2,641			11,335			940			(11,799	)		3,117
Discontinued operations:
Loss from discontinued operations, net of tax		—			(385	)		(91	)		—			(476	)
Net loss from discontinued operations		—			(385	)		(91	)		—			(476	)
Net income (loss)		2,641			10,950			849			(11,799	)		2,641
Accretion for redemption of preferred stock		8,477			—			—			—			8,477
Net (loss) income attributable to common stockholders	$	(5,836	)	$	10,950		$	849		$	(11,799	)	$	(5,836	)

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

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

19

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidating Statement of Operations

For the Three Month Period Ended September 30, 2002

(Unaudited)

	Delco Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	260,804		$	95,770		$	(98,775	)(a)	$	257,799
Cost of goods sold		—			216,397			96,160			(98,775	)(a)		213,782
Gross profit (loss)		—			44,407			(390	)		—			44,017
Selling, general and administrative expenses		4,781			16,506			3,587						24,874
Operating (loss) income		(4,781	)		27,901			(3,977	)		—			19,143
Interest expense, net		(10,989	)		(1,448	)		(452	)		—			(12,889	)
Income (loss) from continuing operations before income taxes (benefit), minority interest, loss from unconsolidated joint ventures and equity in earnings of subsidiaries		(15,770	)		26,453			(4,429	)		—			6,254
Income tax (benefit) expense		(8,318	)		10,028			480			—			2,190
Minority interest		—			(377	)		(909	)		—			(1,286	)
Loss from unconsolidated joint ventures		—			—			(1,230	)		—			(1,230	)
Equity in earnings of subsidiaries		(7,095	)		—			—			7,095	(b)		—
Net (loss) income from continuing operations		(14,547	)		16,048			(7,048	)		7,095			1,548
Discontinued operations:
Loss from discontinued operations, net of tax		—			(8,571	)		(3,985	)		—			(12,556	)
Loss on disposal of businesses, net of tax		—			(3,539	)		—			—			(3,539	)
Net loss from discontinued operations		—			(12,110	)		(3,985	)					(16,095	)
Net (loss) income		(14,547	)		3,938			(11,033	)		7,095			(14,547	)
Accretion for redemption of preferred stock		7,427			—			—						7,427
Net (loss) income attributable to common stockholders	$	(21,974	)	$	3,938		$	(11,033	)	$	7,095		$	(21,974	)

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

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

20

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidating Statement of Operations

For the Nine Month Period Ended September 30, 2003

(Unaudited)

	Delco Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	808,284		$	416,151		$	(432,208	)(a)	$	792,227
Cost of goods sold		—			702,858			377,844			(432,208	)(a)		648,494
Gross profit		—			105,426			38,307			—			143,733
Selling, general and administrative expenses		10,109			51,504			14,198			—			75,811
Restructuring charges		—			46,629			634			—			47,263
Operating (loss) income		(10,109	)		7,293			23,475			—			20,659
Interest expense, net		(42,884	)		(2,145	)		(1,377	)		—			(46,406	)
Income (loss) from continuing operations before income taxes (benefit), minority interest, loss from unconsolidated joint ventures and equity in earnings of subsidiaries		(52,993	)		5,148			22,098			—			(25,747	)
Income tax (benefit) expense		(69	)		1,857			10,334			—			12,122
Minority interest		—			(449	)		(1,776	)		—			(2,225	)
Loss from unconsolidated joint ventures		—			—			(5,909	)		—			(5,909	)
Equity in earnings of subsidiaries		4,475			—			—			(4,475	)(b)		—
Net (loss) income from continuing operations		(48,449	)		2,842			4,079			(4,475	)		(46,003	)
Discontinued operations:
Loss from discontinued operations, net of tax		—			(4,691	)		(172	)		—			(4,863	)
Gain on disposal of businesses, net of tax		—			2,417			—			—			2,417
Net loss from discontinued operations		—			(2,274	)		(172	)		—			(2,446	)
Net (loss) income		(48,449	)		568			3,907			(4,475	)		(48,449	)
Accretion for redemption of preferred stock		24,418			—			—			—			24,418
Net (loss) income attributable to common stockholders	$	(72,867	)	$	568		$	3,907		$	(4,475	)	$	(72,867	)

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

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

21

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidating Statement of Operations

For the Nine Month Period Ended September 30, 2002

(Unaudited)

	Delco Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	792,845		$	300,637		$	(316,985	)(a)	$	776,497
Cost of goods sold		—			687,983			272,300			(316,985	)(a)		643,298
Gross profit		—			104,862			28,337			—			133,199
Selling, general and administrative expenses		10,575			50,094			11,597			—			72,266
Restructuring credits		—			(4,375	)		—			—			(4,375	)
Operating (loss) income		(10,575	)		59,143			16,740			—			65,308
Interest expense, net		(37,530	)		(3,757	)		(958	)		—			(42,245	)
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		(48,105	)		55,386			15,782			—			23,063
Income tax (benefit) expense		(18,757	)		20,938			5,854			—			8,035
Minority interest		—			(1,494	)		(3,327	)		—			(4,821	)
Loss from unconsolidated joint ventures		—			—			(2,700	)		—			(2,700	)
Equity in earnings of subsidiaries		(86,058	)		—			—			86,058	(b)		—
Net (loss) income from continuing operations before cumulative effect of change in accounting principle		(115,406	)		32,954			3,901			86,058			7,507
Discontinued operations:
Loss from discontinued operations, net of tax		—			(14,250	)		(8,015	)		—			(22,265	)
Loss on disposal of businesses, net of tax		—			(9,110	)		(17,362	)		—			(26,472	)
Net loss from discontinued operations		—			(23,360	)		(25,377	)		—			(48,737	)
Cumulative effect of change in accounting principle		—			(55,596	)		(18,580	)		—			(74,176	)
Net (loss) income		(115,406	)		(46,002	)		(40,056	)		86,058			(115,406	)
Accretion for redemption of preferred stock		21,809			—			—			—			21,809
Net (loss) income attributable to common stockholders	$	(137,215	)	$	(46,002	)	$	(40,056	)	$	86,058		$	(137,215	)

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

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

22

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

For the Nine Month Period Ended September 30, 2003

(Unaudited)

	Delco Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities:
Net (loss) income attributable to common stockholders	$	(72,867	)	$	568		$	3,907		$	(4,475	)(a)	$	(72,867	)
Adjustments to reconcile net (loss) income attributable to common stockholders to net cash (used in) provided by operating activities:
Loss from discontinued operations		—			4,691			172			—			4,863
Gain on disposal of businesses		—			(2,417	)		—			—			(2,417	)
Depreciation		8			10,202			6,764			—			16,974
Amortization		748			73			270			—			1,091
Accretion of redemption of preferred stock		24,418			—			—			—			24,418
Minority interest in subsidiaries		—			449			1,776			—			2,225
Loss from unconsolidated joint ventures		—			—			5,909			—			5,909
Equity in earnings of subsidiary		(4,475	)		—			—			4,475	(a)		—
Deferred income taxes		1,938			—			1,799			—			3,737
Post-retirement benefits other than pensions		—			(5,840	)		—			—			(5,840	)
Accrued pension benefits		(454	)		1,970			—			—			1,516
Non-cash interest expense		3,770			—			—			—			3,770
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		—			(16,469	)		(294	)		—			(16,763	)
Inventories		—			(5,439	)		(15,960	)		—			(21,399	)
Accounts payable		768			(14,140	)		9,729			—			(3,643	)
Intercompany accounts		(7,290	)		38,528			(31,238	)		—			—
Other current assets and liabilities		13,728			3,675			(178	)		—			17,225
Restructuring charges		—			46,629			634			—			47,263
Cash payments for restructuring charges		—			(13,847	)		(545	)		—			(14,392	)
Other non-current assets and liabilities, net		35,387			(54,971	)		16,034			—			(3,550	)
Net cash (used in) provided by operating activities of continuing operations		(4,321	)		(6,338	)		(1,221	)		—			(11,880	)
Investing activities:
Acquisitions, net of cash acquired		—			(6,439	)		(3,107	)		—			(9,546	)
Net proceeds on sale of businesses		—			25,525			2,351						27,876
Purchases of property and equipment		—			(8,187	)		(6,845	)		—			(15,032	)
Net cash provided by (used in) investing activities of continuing operations		—			10,899			(7,601	)		—			3,298
Financing activities:
Proceeds from issuance of long-term debt		—			—			6,521			—			6,521
Net borrowings under revolving line of credit and other		4,617			—			—			—			4,617
Net cash provided by financing activities of continuing operations		4,617			—			6,521			—			11,138
Effect of exchange rate changes on cash		—			—			352			—			352
Cash flows of discontinued operations		—			(4,637	)		1,343			—			(3,294	)
Net increase (decrease) in cash and cash equivalents		296			(76	)		(606	)		—			(386	)
Cash and cash equivalents at beginning of period		1			163			12,262			—			12,426
Cash and cash equivalents at end of period	$	297		$	87		$	11,656		$	—		$	12,040

(a) Elimination of equity in earnings of subsidiaries.

23

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

For the Nine Month Period Ended September 30, 2002

(Unaudited)

	Delco Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities:
Net (loss) income attributable to common stockholders	$	(137,215	)	$	(46,002	)	$	(40,056	)	$	86,058	(a)	$	(137,215	)
Adjustments to reconcile net (loss) income attributable to common stockholders to net cash (used in) provided by operating activities:
Cumulative effect of change in accounting principle		—			55,596			18,580			—			74,176
Loss from discontinued operations		—			14,250			8,015			—			22,265
Loss on disposal of businesses		—			9,110			17,362			—			26,472
Depreciation		9			13,818			5,635			—			19,462
Amortization		—			271			131			—			402
Accretion for redemption of preferred stock		21,809			—			—			—			21,809
Equity in earnings of subsidiaries		86,058			—			—			(86,058	)(a)		—
Minority interest in subsidiaries		—			1,494			3,327			—			4,821
Loss from unconsolidated joint ventures		—			—			2,700			—			2,700
Deferred income taxes		(3,455	)		3,920			1,773			—			2,238
Post-retirement benefits other than pensions		—			(2,259	)		—			—			(2,259	)
Accrued pension benefits		(131	)		(142	)		(671	)		—			(944	)
Non-cash interest expense		2,324			339			—			—			2,663
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		—			(19,397	)		(3,992	)		—			(23,389	)
Inventories		—			(477	)		(4,748	)		—			(5,225	)
Accounts payable		(683	)		(6,913	)		12,812			—			5,216
Intercompany accounts		(6,012	)		30,338			(24,326	)		—			—
Other current assets and liabilities		8,181			16,674			(10,322	)		—			14,533
Restructuring credits		—			(4,375	)		—			—			(4,375	)
Cash payments for restructuring charges		—			(13,102	)		(704	)		—			(13,806	)
Other non-current assets and liabilities, net		(3,563	)		2,798			606			—			(159	)
Net cash (used in) provided by operating activities of continuing operations		(32,678	)		55,941			(13,878	)		—			9,385
Investing activities:
Acquisitions, net of cash acquired		—			(13,918	)		—			—			(13,918	)
Purchases of property and equipment		—			(8,502	)		(4,972	)		—			(13,474	)
Investments in joint ventures		(3,000	)		—			—			—			(3,000	)
Net cash used in investing activities of continuing operations		(3,000	)		(22,420	)		(4,972	)		—			(30,392	)
Financing activities:
Proceeds from issuance of long-term debt		144,769			—			—			—			144,769
Retirement of long-term debt		(144,769	)		—			—			—			(144,769	)
Net borrowings (repayments) under revolving line of credit and other		43,837			(16,162	)		10,214			—			37,889
Deferred financing costs		(8,011	)		—			—			—			(8,011	)
Distributions to minority interest		—			—			(1,800	)		—			(1,800	)
Net cash provided by (used in) financing activities of continuing operations		35,826			(16,162	)		8,414			—			28,078
Effect of exchange rate changes on cash		—			—			1,282			—			1,282
Cash flows of discontinued operations		—			(17,363	)		(3,019	)		—			(20,382	)
Net increase (decrease) in cash and cash equivalents		148			(4	)		(12,173	)		—			(12,029	)
Cash and cash equivalents at beginning of period		—			115			22,469			—			22,584
Cash and cash equivalents at end of period	$	148		$	111		$	10,296		$	—		$	10,555

(a) Elimination of equity in earnings of subsidiaries.

24

15. Subsequent Event

On October 3, 2003 the Company amended and restated its senior credit facility. The amended and restated facility consists of a $60,000 term loan facility and a $190,000 secured, asset based, revolving credit facility (together, the “Senior Credit Facility”). This Senior Credit Facility amends the Company’s then-existing asset-based revolving credit facility of $250,000. Proceeds from the term loan were used to reduce outstanding debt under the Company’s then-existing asset-based revolving credit facility, thereby increasing the Company’s total borrowing capacity under its Senior Credit Facility by approximately $60,000. The interest rate on the term loan facility is Wachovia Bank’s prime rate plus 4.5%, subject to a minimum interest rate of 8.5%, and the applicable interest rate on the borrowings under the revolving credit facility remains unchanged and floats at rates above the lenders’ prime rate and eurodollar rate. The amended and restated Senior Credit Facility extends through March 31, 2006 and has provisions for annual extensions thereafter.

The amended and restated Senior Credit Facility contains various 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 amended and restated 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.

25

Item 2. Managements’ Discussion and Analysis of Financial Condition and Results of Operations

The following managements’ 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 of $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 closure of its 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 third quarter of 2003, the Company recorded a restructuring charge of $2.7 million related to the aforementioned actions, consisting of $1.1 million in employee termination benefits relative to closure of the electrical aftermarket remanufacturing and distribution facilities, $1.1 million for asset impairment associated with consolidation of the alternator and starter remanufacturing operations in Mississippi and other miscellaneous costs of $0.5 million.

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, 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 was increased $1.8 million and income taxes were reduced $0.7 million from amounts previously reported.

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

Net Sales

Net sales of $263.5 million in the third quarter of 2003 increased $5.7 million, or 2.2%, compared with the third quarter of 2002. In the original equipment maker (“OEM”) market, Automotive sales increased $2.3 million primarily due to shipments of alternators from Hubei, and Heavy-duty sales declined $2.9 million due to lower customer volume. Electrical Aftermarket sales increased $8.9 million due to new business,

26

partially offset by reduced sales to General Motors’ (“GM”) service parts organization. Powertrain/drivetrain sales declined $3.8 million due to continued negative trends effecting the transmission business, including the introduction of more restrictive warranty programs at both Ford and GM, partially offset by increased demand for remanufactured diesel engines and parts. Third party sales in the core services business increased $1.2 million. Consolidated sales were also positively impacted by favorable foreign currency exchange rates.

Gross Profit

Gross profit of $49.3 million in the third quarter of 2003 increased $5.3 million, or 12.0%, compared with the third quarter of 2002, and as a percentage of net sales improved to 18.7% in the third quarter of 2003 compared with 17.1% in the third quarter of 2002. In the OEM market, Automotive gross profit declined $0.7 million on higher sales due to start up costs in the automotive alternator business, and Heavy-duty gross profit increased $1.2 million on lower sales due to realization of benefits from the first quarter 2003 cost reduction and restructuring actions. Electrical Aftermarket gross profit increased $3.0 million due to higher sales and lower costs. Powertrain/drivetrain gross profit increased $1.1 million due to higher diesel engine and parts volume and lower costs, partially offset by lower transmission sales volume and product sales mix. Gross profit on core services increased $0.7 million.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses of $24.4 million in the third quarter of 2003 declined $0.5 million from $24.9 million in the third quarter of 2002. As a percentage of net sales, SG&A expenses improved to 9.3% in 2003 compared with 9.6% in 2002. Investments in product engineering, distribution and marketing programs in 2003 were offset by overall cost reduction and control efforts.

Restructuring Charges

Restructuring charges of $2.7 million in the third quarter of 2003 consisted of employee termination benefits of $1.1 million, asset impairment charges of $1.1 million and other costs of $0.5 million relative to the actions discussed above.

Operating Income

After restructuring charges of $2.7 million, operating income of $22.2 million in the third quarter of 2003 increased $3.1 million, or 16.2%, compared with $19.1 million in the third quarter of 2002, and as a percentage of sales improved to 8.4% from 7.4% in 2002. This growth reflects the sales, gross profit and SG&A expense improvements discussed above.

Interest Expense

Interest expense of $15.5 million in the third quarter of 2003 increased $2.6 million compared with the third quarter of 2002 reflecting a net decrease in interest costs allocated to discontinued operations.

Income Taxes

Income tax expense of $2.0 million in the third 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.

27

Minority Interest

Minority interest in income of subsidiaries of $1.5 million in the third quarter of 2003 compares with $1.3 million in the third quarter of 2002. This increase reflected improved subsidiary earnings and minority interest relative to Hubei, which was acquired on March 31, 2003, partially offset by the purchase of additional shares from the minority shareholders of World Wide, Power and Delco Remy Korea.

Loss From Unconsolidated Joint Ventures

The loss from unconsolidated joint ventures of $0.2 million in the third quarter of 2003 compares with a loss of $1.2 million in the third quarter of 2002. The year over year change primarily reflects losses recorded by iPower Technologies, L.L.C. (“iPower”) in 2002. The Company wrote off its remaining investment in iPower in the second quarter of 2003.

Discontinued Operations

The loss from discontinued operations before tax in the third quarter of 2003 of $0.5 million consisted of operating losses in the contract remanufacturing gas engine business. The $12.6 million loss in the third quarter of 2002 consisted of net operating losses on all discontinued businesses of $7.0 million (including a restructuring charge of $2.8 million), interest expense of $3.1 million and a $2.5 million income tax valuation allowance. It was determined in the third quarter of 2002 that estimated future taxable income relative to discontinued operations, both in the United States and Canada, and reversing taxable temporary differences, were not sufficient to absorb the losses recorded to date.

The $3.5 million loss on disposal of businesses in the third quarter of 2002 consisted of a valuation allowance established relative to the income tax benefit recorded in the second quarter of 2002 on the write down of the assets of the retail aftermarket gas engine business.

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

Net Sales

Net sales of $792.2 million in the first nine months of 2003 increased $15.7 million, or 2.0%, compared with the first nine months of 2002. In the OEM market, Automotive sales increased $4.8 million due to higher sales to GM during the first quarter, shipments of alternators from Hubei and increased non-GM customer demand during the second and third quarters of 2003. Heavy-duty sales declined $5.2 million due to lower customer volume during the second and third quarters of 2003. Electrical Aftermarket sales increased $14.1 million due to new business wins, partially offset by reduced sales to GM service parts organization and, in the first quarter of 2003, retail customer inventory reductions. Powertrain/drivetrain sales declined $1.5 million due to reduced transmission volume as a result of reductions in service parts inventory at GM and the introduction of more restrictive warranty programs at Ford and GM during the second quarter of 2003, partially offset by increased remanufactured diesel engine and parts volume. Third party sales in the core services business increased $3.5 million. Consolidated net sales were also positively impacted by favorable foreign currency exchange rates.

28

Gross Profit

Gross profit of $143.7 million in the first nine months of 2003 increased $10.5 million, or 7.9%, compared with the first nine months of 2002, and as a percentage of net sales improved to 18.1% in the nine months of 2003 compared with 17.2% in the nine months of 2002. In the OEM market, Automotive and Heavy-duty gross profit increased $0.5 million and $7.3 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 and costs, primarily in the first quarter of 2003, arising from the shut down and move of operations. Electrical aftermarket gross profit increased $1.9 million due to sales growth, partially offset by unfavorable product mix. Powertrain/drivetrain gross profit declined $1.5 million due to lower transmission volume and product mix and a higher ratio of parts sales to diesel engine sales, largely offset by an overall increase in remanufactured diesel engine and parts sales. Gross profit on core services increased $2.3 million due to sales volume growth.

Selling, General and Administrative Expenses

SG&A expenses of $75.8 million in the first nine months of 2003 increased $3.5 million from $72.3 million in the comparable period of 2002. As a percentage of net sales, SG&A expenses were 9.6% in the nine months of 2003 and 9.3% in the nine months of 2002. The year over year increase in spending primarily reflects investments in product engineering, distribution and marketing programs, partially offset by overall cost reduction and control efforts.

Restructuring Charges

Restructuring charges of $47.3 million in the first nine months of 2003 consisted of employee termination benefits of $14.7 million, asset impairment charges of $37.1 million, a net pension and post-employment benefit plan curtailment gain of $5.4 million and other costs of $0.9 million relative to the actions discussed above. The $4.4 million restructuring credit in the first nine months of 2002 consisted of a post-employment benefit curtailment gain associated with the fourth quarter 2001 restructuring actions.

Operating Income

After restructuring charges of $47.3 million, operating income of $20.7 million in the first nine months of 2003 compares with operating income of $65.3 million, including a $4.4 million restructuring credit, in the first nine months of 2002. Performance in 2003 reflects the sales and gross profit improvements discussed above.

Interest Expense

Interest expense of $46.4 million in the first nine months of 2003 increased $4.2 million compared with the first nine months of 2002 due to an $8.3 million decrease in interest charged to discontinued operations and a $0.7 million increase in deferred financing costs relative to the Senior Credit Facility, partially offset by a $3.0 million net decrease in interest due primarily to lower borrowings under the 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.

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Income Taxes

The Company recorded income tax expense of $12.1 million in the first nine months of 2003 on a consolidated loss before tax of $34.2 million. Tax expense consisted of income taxes of $9.2 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 in income of subsidiaries of $2.2 million in the first nine months of 2003 compares with $4.8 million in the first nine months of 2002. This decrease primarily reflects the purchase of additional shares from the minority shareholders of World Wide, Power and Delco Remy Korea, partially offset by the minority interest of Hubei, which was acquired on March 31, 2003.

Loss From Unconsolidated Joint Ventures

The loss from unconsolidated joint ventures of $5.9 million in the first nine months of 2003 compares with $2.7 million in the first nine months of 2002. This increase primarily 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.

Discontinued Operations

The loss from discontinued operations in the first nine months of 2003 of $4.9 million consisted of operating losses of $3.7 million and interest expense of $1.2 million. The loss of $22.3 million in the first nine months of 2002 was comprised of operating losses of $15.0 million (including a restructuring charge of $2.8 million), interest expense of $8.7 million and a net income tax benefit of $1.4 million, net of the aforementioned valuation allowance of $2.5 million recorded in the third quarter.

The $2.4 million gain on disposal of businesses in the first nine months of 2003 consisted of the gain on the sale of Tractech and Kraftube recorded in the first quarter. The $26.5 million loss in the first nine months of 2002 consisted of the loss on the disposal of the retail gas engine business recorded in the second quarter of 2002. As discussed above, a valuation allowance of $3.5 million was recorded relative to the income tax benefit of this loss.

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, such as 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

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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.

During 2003, certain Mexican subsidiaries of the Company entered into a machinery and equipment sale-leaseback financing transaction with GE Mexico. Net cash proceeds were $6.5 million, net of security deposits of $3.3 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 $9.8 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 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.

On October 3, 2003 the Company amended and restated it senior credit facility. The amended and restated facility consists of a $60 million term loan facility and a $190 million secured, asset based, revolving credit facility. This Senior Credit Facility amends the Company’s then-existing asset-based revolving credit facility of $250 million. Proceeds from the term loan were used to reduce outstanding debt under the Company’s then-existing asset based revolving credit facility, thereby increasing the Company’s total borrowing capacity under its Senior Credit Facility by approximately $60 million. The interest rate on the term loan facility is Wachovia Bank’s prime rate plus 4.5%, subject to a minimum interest rate of 8.5%, and the applicable interest rate on the borrowings under the revolving credit facility remains unchanged and floats at rates above the lenders’ prime rate and eurodollar rate. 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. 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.

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.

Cash used in operating activities of continuing operations of $11.9 million in the first nine months of 2003 compares with cash provided of $9.4 million in the comparable period of 2002. Cash usage in 2003 includes a $16.8 million increase in accounts receivable reflecting seasonal factors in the business and increased sales to customers with longer terms. This compares with a $23.4 million increase in the first nine months of 2002. Receivables management measured in days of sales outstanding improved in 2003 compared with

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both the third quarter of 2002 and year-end 2002. Inventories increased $21.4 million in the first nine months of 2003 compared with a $5.2 million increase in the first nine months of 2002 due to increases to support the restructuring actions, seasonal demand in the Electrical Aftermarket and customer core returns. Cash restructuring payments of $14.4 million in the first nine months of 2003 consisted primarily of employee termination benefits relative to the 2001, 2002 and 2003 restructuring actions and facility related costs. Payments of $13.8 million in the first nine months of 2002 consisted primarily of employee termination benefits relative to the 2000 and 2001 restructuring actions. Offsetting these items in 2003 was a $17.2 million increase in other net current liabilities, including wages and benefits, interest and general accruals from year end and, in 2002, a $5.2 million increase in accounts payable reflecting higher production levels and timing of vendor payments.

Acquisition payments in the first nine months of 2003 consisted of the purchase, under contractual put agreements, of increased ownership percentages in World Wide and Power of $6.4 million, a $2.7 million payment on notes issued in connection with the acquisition of the remaining shares of Delco Remy Korea 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 nine months of 2002 consisted of increased ownership percentages in World Wide and Power of $7.9 million, the acquisition of additional shares of Delco Remy Korea for $5.5 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 first nine months of 2003, the Company recorded net cash proceeds of $6.5 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 nine months of 2002, the Company made payments totaling $8.0 million for deferred financing costs in conjunction with the 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, 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 Note 10 to the Condensed Consolidated Financial Statements in Item 1 of 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

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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 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 nine months ended September 30, 2003.

The Company currently expects to make payments of approximately $5.0 million during the last three months of 2003 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., 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 $30.0 million to $35.0 million, payable in 2003 to 2006. Payments on notes issued in connection with the acquisition of Delco Remy Korea are expected to be $2.5 million in the fourth quarter of 2003 and $5.0 million in 2004.

Cash payments relative to the Company’s restructuring actions, including those for expected charges of approximately $3.0 million to $5.0 million in the last three months of 2003, are currently estimated to be approximately $5.0 million in the last three months of 2003 and $15.0 million in 2004.

The Company expects capital expenditures in the last three months of 2003 to be approximately $8.0 million to $9.0 million.

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 23% of the Company’s net sales in the nine months ending September 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.

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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 of Financial Condition and Results of Operations, 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 $3.0 million to $5.0 million during the last three 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 fourth quarter of 2003 will decrease as compared to the second and third quarters due primarily to seasonality and lower Heavy-duty OEM and transmission sales. Compared with the fourth quarter of 2002, the Company currently expects marginal improvement in sales with continued increases in the Electrical aftermarket largely offset by softness in Automotive and Heavy-duty OEM and transmissions. Margins should continue to be favorably impacted by savings generated from the first quarter 2003 cost reductions and restructuring actions, partially offset by unfavorable absorption.

At September 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of September 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 them 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.

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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 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 two 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 DRM and a claim for $17,000 for the alleged breach of a Service Agreement between DRM 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.

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The arbitration hearing began the week of May 19, 2003 and concluded on September 24, 2003. The parties are scheduled to submit post-hearing briefs by December 2, 2003 and the arbitration panel is scheduled to hear oral argument on January 6, 2004. The arbitration panel is expected to render a decision on all matters sometime after the oral argument.

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 landlord 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 twenty thousand dollars 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 2004. The Company denies the material allegations of the complaint, denies any wrongdoing and intends to defend itself vigorously, but is unable to predict whether the proceedings will have a material adverse effect on the Company.

(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 Remy Reman responded to the information requests in April 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, the Company does not believe that the 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.

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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

3.1	Second Amended and Restated Certificate of Incorporation.
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) Reports on Form 8-K

(1) Report dated July 30, 2003, containing the press release dated July 30, 2003, announcing the 2003 second quarter results.

(2) Report dated September 16, 2003, containing reclassified 2002 and 2001 unaudited, condensed consolidated financial statements of Delco Remy International, Inc.

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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: November 12, 2003	By:	/s/    Rajesh K. Shah
		Rajesh K. Shah
		Executive Vice President and Chief Financial Officer

Date: November 12, 2003	By:	/s/    Amitabh Rai
		Amitabh Rai
		Vice President and Corporate Controller Chief Accounting           Officer

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EXHIBIT INDEX

Exhibit No.	Description
3.1	Second Amended and Restated Certificate of Incorporation.
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.

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EX-3.1

Exhibit 3.1

SECOND AMENDED AND RESTATED CERTIFICATE

OF INCORPORATION

OF

DELCO REMY INTERNATIONAL, INC.

1. Name. The name of the corporation is Delco Remy International, Inc. (the “Corporation”).

2. Registered Office and Agent. The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation’s registered agent at such address is The Corporation Trust Company.

3. Purpose. The purposes for which the Corporation is formed are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (“DGCL”) and to possess and exercise all of the powers and privileges granted by such law and any other law of Delaware.

4. Authorized Capital. The aggregate number of shares of stock which the Corporation shall have authority to issue is 15,501,000 shares, divided into four (4) classes consisting of 3,500,000 shares of 12% Series A Accreting Preferred Stock, par value $.01 per share (“Series A Preferred Stock”); 1,000 shares of Class A Common Stock, par value $.001 per share (“Class A Common Stock”); 6,000,000 shares of Class B Common Stock, par value $.001 per share (“Class B Common Stock”); and 6,000,000 shares of Class C Common Stock, par value $.001 per share (“Class C Common Stock”). Class A Common Stock, Class B Common Stock and Class C Common Stock are hereinafter sometimes collectively referred to as “Common Stock”.

The following is a statement of the designations, preferences, qualifications, limitations, restrictions and the special or relative rights granted to or imposed upon the shares of each such class.

a. SERIES A PREFERRED STOCK

(1) Payment of Dividends

(a) The holders of Series A Preferred Stock shall be entitled to receive ratably on a per share basis such dividends as may be declared by the Board of

Directors; provided that the aggregate amount of dividends per share of Series A Preferred Stock declared by the Board of Directors or paid by the Corporation from time to time shall not exceed an amount equal to the amount accreting at the rate of 12% per annum on the Series A Issue Price (as defined below), compounded annually from the date of original issuance of such share of Series A Preferred Stock to the date of payment of the dividend in question (the “Maximum Dividend Amount”). “Series A Issue Price” shall mean $100.00 per share, which shall be proportionately increased in the event of a combination of shares of Series A Preferred Stock and proportionately decreased in the event of a subdivision or stock split of shares of Series A Preferred Stock.

(b) If at any time dividends equal to the Maximum Dividend Amount on all shares of Series A Preferred Stock then outstanding to the end of the annual dividend period next preceding such time shall not have been paid, the amount of the deficiency shall be paid before any sum shall be set aside for or applied by the Corporation to the purchase, redemption or other acquisition for value of any shares of Junior Stock (either pursuant to any applicable sinking fund requirement or otherwise) or any dividend or other distribution shall be paid or declared and set apart for payment on any Junior Stock (other than a dividend payable in Junior Stock); provided, however, that the foregoing shall not prohibit the Corporation from repurchasing shares of Junior Stock from a former employee or director of the Corporation (or a subsidiary of the Corporation).

(2) Preference on Liquidation

(a) In the event that the Corporation shall be liquidated, dissolved or wound up, whether voluntarily or involuntarily, after all creditors of the Corporation shall have been paid in full, the holders of the Series A Preferred Stock shall be entitled to receive, out of the assets of the Corporation legally available for distribution to its stockholders, whether from capital, surplus or earnings, before any amount shall be paid to the holders of any shares of Junior Stock, an amount in cash per share equal to (i) the Series A Issue Price, plus (ii) the Accreting Amount (as defined below) to the date of final distribution, less (iii) (A) any dividends declared and paid on such shares of Series A Preferred Stock, plus (B) 12% of any dividends declared and paid thereon, compounded annually from the date of payment to the date of final distribution, and no more. “Accreting Amount” shall mean an amount equal to the amount accreting at the rate of 12% per annum on the Series A Issue Price, compounded annually from the date of original issuance of such share of Series A Preferred Stock to the specified date of calculation of such Accreting Amount. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the net assets of the Corporation shall be insufficient to pay the holders of all outstanding shares of Series A Preferred Stock the full amounts to which they respectively shall be entitled, such assets, or the proceeds thereof, shall be distributed ratably among the holders of the Series A Preferred Stock in accordance with the amounts which would be payable on such distribution if the amount to which the holders of the Series A Preferred Stock are entitled were paid in full. Holders of Series A Preferred Stock shall not be entitled, upon the voluntary or involuntary liquidation, dissolution or winding up of the

2

Corporation, to receive any amounts with respect to such stock other than the amounts referred to in this paragraph (2)(a).

(b) Neither the purchase nor redemption by the Corporation of shares of any class of stock in any manner permitted by the Certificate of Incorporation or any amendment thereof, nor the merger or consolidation of the Corporation with or into any other corporation or corporations, nor a sale, exchange, conveyance, transfer or lease of all or substantially all of the Corporation’s assets shall be deemed to be a liquidation, dissolution or winding up of the Corporation for the purposes of this paragraph (2); provided, however, that any consolidation or merger of the Corporation in which the Corporation is not the surviving entity shall be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph (2) if, (i) in connection therewith, the holders of Common Stock of the Corporation receive as consideration, whether in whole or in part, for such Common Stock (1) cash, (2) notes, debentures or other evidences of indebtedness or obligations to pay cash or (3) preferred stock of the surviving entity which ranks on a parity with or senior to the preferred stock received by holders of the Series A Preferred Stock with respect to liquidation, accreting amounts payable or dividends or (ii) the holders of the Series A Preferred Stock do not receive preferred stock of the surviving entity with rights, powers and preferences equal to (or more favorable to the holders than) the rights, powers and preferences of the Series A Preferred Stock.

(3) Repurchase Rights

(a) Each holder of Series A Preferred Stock may elect, at such holder’s option by notice delivered pursuant to paragraph 3(b) below, to have such holder’s Series A Preferred Stock repurchased by the Corporation, in whole or in part, at any time after December 16, 2023 at a price per share equal to (i) the Series A Issue Price, plus (ii) the Accreting Amount to the Repurchase Date (as defined below), less (iii) (A) any dividends declared and paid on such shares of Series A Preferred Stock, plus (B) 12% of any dividends declared and paid thereon, compounded annually from the date of payment to the Repurchase Date (the “Repurchase Price”). The date specified for any repurchase pursuant to this paragraph (3)(a) is each referred to herein individually as a “Repurchase Date.”

(b) If a holder of Series A Preferred Stock elects to have the Corporation repurchase such holder’s shares of Series A Preferred Stock, such holder shall give notice (a “Repurchase Notice”) to the Corporation of such holder’s election to have the Corporation repurchase such holder’s Series A Preferred Stock not less than ten (10) days and not more than sixty (60) days prior to the applicable Repurchase Date. Each notice by an electing holder shall state whether all or less than all the outstanding shares of the Series A Preferred Stock held by such holder are to be repurchased and the total number of shares of such Series A Preferred Stock subject to such repurchase.

(c) The holder of the shares of Series A Preferred Stock to be repurchased shall surrender the certificate or certificates representing such shares at the office of the Corporation on or prior to the Repurchase Date. The Corporation shall deliver to

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such holder, or on the holder’s written instruction to the holder’s designee, the applicable Repurchase Price on the later to occur of (i) the Repurchase Date, and (ii) the date on which such holder surrenders to the Corporation (or its designee) the certificate(s) for the shares of Series A Preferred Stock to be repurchased as specified in the applicable Repurchase Notice. If less than all the shares represented by one share certificate are to be repurchased, the Corporation shall issue a new share certificate for the shares not repurchased. The repurchase shall be deemed to have been effected immediately prior to the close of business on the applicable Repurchase Date. Whether or not the share certificates representing shares of Series A Preferred Stock with respect to which a Repurchase Notice have been delivered are surrendered on or prior to the Repurchase Date, such shares shall no longer be deemed to be outstanding and all rights of a holder with respect to such shares surrendered for repurchase shall terminate effective as of the Repurchase Date except the right to receive the applicable Repurchase Price upon the surrender of such shares to the Corporation.

(4) Redemption

(a) The outstanding shares of the Series A Preferred Stock may be redeemed from funds legally available therefor, in whole or in part, at the election of the Corporation, expressed by resolution of the Board of Directors, on or after December 16, 2023, at a price per share equal to (i) the Series A Issue Price, plus (ii) the Accreting Amount to the Redemption Date (as defined below), less (iii) (A) any dividends declared and paid on such shares of Series A Preferred Stock, plus (B) 12% of any dividends declared and paid thereon, compounded annually from the date of payment to the Redemption Date (the “Redemption Price”). The date of any redemption pursuant to this paragraph (4)(a) is referred to herein as a “Redemption Date.”

(b) The Corporation shall deliver notice of every redemption pursuant to this paragraph (4) by first class mail to each holder of record on the record date for such redemption at such holder’s address as the same appears on the stock register of the Corporation not less than ten (10) days and not more than sixty (60) days prior to the Redemption Date. Each such notice shall state (i) the Redemption Date, (ii) the place or places where such shares are to be surrendered, (iii) that the holder is to surrender the shares at the place of redemption and (iv) that the Accreting Amount on the Series A Preferred Stock shall cease to accrete on the Redemption Date. If less than all the outstanding Series A Preferred Stock is to be redeemed, the selection of shares for redemption shall be made pro rata and the notice of redemption to a holder shall state the number of shares of Series A Preferred Stock of such holder to be redeemed. The amount of the applicable Redemption Price shall be deposited on or before the applicable Redemption Date in trust for the account of the holders of Series A Preferred Stock entitled thereto with a bank or trust company in good standing doing business in the State of New York and having capital and surplus of at least $100,000,000 (the date of such deposit being hereinafter in this paragraph (4) referred to as the “date of deposit”).

(c) Notice of the date on which, and the name and address of the bank or trust company with which, the deposit has been or will be made shall be

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included in the notice of redemption. On and after the applicable Redemption Date (unless default shall be made by the Corporation in providing money for the payment of the Redemption Price pursuant to the notice of redemption), or if the Corporation shall make such deposit on or before the date specified therefor in the notice of redemption, then on and after the date of deposit (provided notice of redemption has been duly given), all accreting amounts on the Series A Preferred Stock so called for redemption shall cease to accrete, and the notice of redemption shall so state, and, notwithstanding that any certificate for shares of Series A Preferred Stock is not surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding and all rights of the holders thereof as stockholders of the Corporation shall cease and terminate, except the right to receive the Redemption Price (without interest) as hereinafter provided.

(d) At any time on or after the Redemption Date, the holders of record of the Series A Preferred Stock shall be entitled to receive the Redemption Price upon actual delivery to the bank or trust company with which such deposit shall be made of certificates for the shares to be redeemed, such certificates, if required, to be duly endorsed in blank or accompanied by proper instruments of assignment and transfer duly endorsed in blank. The making of such deposit with any such bank or trust company shall not relieve the Corporation of liability for payment of the Redemption Price.

(e) Any money so deposited which shall remain unclaimed by the holders of such Series A Preferred Stock at the end of two (2) years after the Redemption Date shall be paid by such bank or trust company to the Corporation, which shall thereafter, to the extent of the money so repaid, be liable for the payment of the Redemption Price. Any interest accrued on money so deposited shall be paid to the Corporation from time to time.

(5) Conversion

(a) Subject to the provisions of this paragraph (5), the Corporation shall have the right, upon or concurrently with the Corporation’s first Qualified Public Offering (as defined below), to convert all outstanding shares (and fractional shares) of Series A Preferred Stock, in whole or in part, into fully paid and non-assessable shares of Class B Common Stock. The number of shares of Common Stock deliverable upon conversion of a share of Series A Preferred Stock, adjusted as hereinafter provided, is referred to herein as the “Conversion Ratio.” The Conversion Ratio is (i) the Series A Issue Price, plus (ii) the Accreting Amount to the date fixed for conversion, less (iii) (A) any dividends declared and paid on such shares of Series A Preferred Stock, plus (B) 12% of any dividends declared and paid thereon, compounded annually from the date of payment to the date fixed for conversion, divided by the net proceeds per share of Common Stock received, after giving effect to underwriting discounts, by the Corporation in its Qualified Public Offering.

(b) In the event of the conversion of shares of Series A Preferred Stock, the Corporation shall send via first class mail, postage prepaid, a notice of conversion to each holder of record of shares of Series A Preferred Stock addressed to the holder

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at the address of such holder appearing on the books of the Corporation or given by the holder to the Corporation for the purpose of notice (a “Conversion Notice”), or, if no such address appears or is given, then at the place where the principal executive office of the Corporation is located, not later than ten (10) days before such conversion is to occur, as set forth above. The Conversion Notice shall state:

(i) in the case of any conversion, whether all or less than all the outstanding shares of the Series A Preferred Stock are to be converted and the total number of shares of such Series A Preferred Stock being converted;

(ii) the number of shares of Series A Preferred Stock held by the holder that the Corporation will convert;

(iii) the date fixed for conversion and the procedure pursuant to which the price will be determined, at which such price the shares of Series A Preferred Stock will be converted;

(iv) that the holder is to surrender to the Corporation, in the manner and at the place designated, its certificates representing the shares of Series A Preferred Stock to be converted; and

(v) that the Accreting Amount on shares to be converted will cease to accrete on the date fixed for conversion.

(c) The holder of the shares of Series A Preferred Stock to be converted shall surrender the certificate representing such shares at the office of the Corporation. Unless the shares issuable on conversion are to be issued in the same name as the name in which such shares of Series A Preferred Stock are registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or the holder’s duly authorized attorney and an amount sufficient to pay any transfer or similar tax.

(d) As promptly as practicable after the surrender by the holder of the certificates for shares of Series A Preferred Stock as aforesaid, the Corporation shall issue and shall deliver to such holder, or on the holder’s written order to the holder’s transferee, a certificate or certificates for the whole number of shares of Common Stock issuable upon the conversion of such shares in accordance with the provisions of this paragraph (5). If less than all the shares represented by one share certificate are to be converted, the Corporation shall issue a new share certificate for the shares not converted.

(e) The conversion shall be deemed to have been effected immediately prior to the close of business on the date specified in the Conversion Notice, and the person in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder of record of the shares of Common Stock represented thereby at such time on such date

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and such conversion shall be into a number of shares of Common Stock equal to the product of the number of shares of Series A Preferred Stock surrendered times the Conversion Ratio in effect at such time on such date. All shares of Common Stock delivered upon conversion of the Series A Preferred Stock will upon delivery be duly and validly issued and fully paid and non-assessable, free of all liens and charges and not subject to any preemptive rights. Whether or not the share certificates representing shares of Series A Preferred Stock are surrendered, such shares shall no longer be deemed to be outstanding and all rights of a holder with respect to such shares surrendered for conversion, including any rights to the Accreting Amount or unpaid dividends, shall immediately terminate except the right to receive the Common Stock.

(f) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Common Stock as shall be required for the purpose of effecting conversions of the Series A Preferred Stock. Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Series A Preferred Stock, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation.

(g) The Corporation will pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of the Series A Preferred Stock pursuant hereto; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the Series A Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

(h) No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock, provided that whether or not fractional shares result from a conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall round the number of shares of Common Stock issuable to such holder to the nearest whole share.

(6) Voting. Except as required by law and except for any voting by the holders of the Series A Preferred Stock as part of a separate class or series pursuant to paragraph (7) hereunder or any other provision of the Corporation’s Certificate of Incorporation, no holder of Series A Preferred Stock, as such holder, shall be entitled to vote on any matter submitted to a vote of stockholders. On any matters on which the holders of the Series A Preferred Stock shall be entitled to vote, they shall be entitled to one vote for each share held.

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(7) Other Rights. Without the written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock or the vote of the holders of a majority of the outstanding shares of Series A Preferred Stock at a meeting of the holders of Series A Preferred Stock called for such purpose, the Corporation shall not (a) create, authorize or issue any other class or series of stock entitled to a preference prior to Series A Preferred Stock upon any dividend, distribution or accreting amount or any liquidation, distribution of assets, dissolution or winding up of the Corporation, or increase the authorized amount of any such other class or series, or (b) amend, alter or repeal any provision of the Corporation’s Certificate of Incorporation so as to adversely affect the relative rights and preferences of the Series A Preferred Stock; provided, however, that any such amendment that changes the Maximum Dividend Amount or Accreting Amount payable on the Series A Preferred Stock, or the provisions of Section 4.a.(1)(b) above, shall require the affirmative vote of the holders of not less than 75% of the then outstanding shares of Series A Preferred Stock at a meeting of such holders called for such purpose or the written consent of the holder of each share of Series A Preferred Stock.

(8) Acknowledgement. Each holder of Series A Preferred Stock, by acceptance thereof, acknowledges and agrees that payments of dividends, interest, premium and principal on, and redemption and repurchase of, such securities by the Corporation are subject to restrictions contained in certain credit and financing agreements of the Corporation.

(9) Definitions.

The following terms, when used herein, shall have the meanings set forth below:

(a) “corporation” shall mean a corporation, partnership, business trust, unincorporated organization, association or joint stock company.

(b) “Junior Stock” shall mean any series or class of the capital stock of the Corporation now or hereafter authorized or issued by the Corporation ranking junior to the Series A Preferred Stock with respect to dividends, distributions or accreting amounts or upon the liquidation, distribution of assets, dissolution or winding-up of the Corporation, including without limitation the Class A Common Stock, the Class B Common Stock and the Class C Common Stock.

(c) “person” shall mean an individual, a corporation, partnership, trust, organization, association, government or any department or agency thereof, or any other individual or entity.

(d) “Qualified Public Offering” shall mean an underwritten public offering of securities of the Corporation pursuant to an effective registration statement under the Securities Act in respect of the offer and sale of shares of Common Stock for the account of the Corporation resulting in aggregate net proceeds to the Corporation and any

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stockholder selling shares of Common Stock in such offering of not less than $20,000,000, net of underwriting discounts and commissions.

b. CLASS A COMMON STOCK, CLASS B COMMON STOCK AND CLASS C COMMON STOCK

Except as otherwise provided herein, all shares of Class A Common Stock, Class B Common Stock and Class C Common Stock shall be identical and shall entitle the holders thereof to the same rights and privileges.

(1) Voting Rights. The holders of shares of Common Stock shall have the following voting rights:

(a) The holders of Class A Common Stock shall have the general right to vote for all purposes, including the election of directors, as provided by law. Except as provided in this paragraph (1), the Original Holders (as defined below) of Class A Common Stock shall be entitled to that number of votes equal to, in the aggregate, 51% of the total number of votes entitled to be cast by the holders collectively owning all of the outstanding shares of Class A Common Stock and Class B Common Stock. The number of votes to be cast by the holder of Class A Common Stock may vary and shall be determined, in each instance, prior to a vote of Corporation stockholders. The number of votes granted to the Class A Common Stock shall be determined by multiplying the number of shares of Class B Common Stock outstanding immediately prior to a stockholder vote by 0.51 divided by 0.49 (the “Class A Vote”); provided, however, that, if at any time hereafter, the aggregate principal amount of indebtedness outstanding under the Corporation’s (i) Indenture dated August 1, 1996 among the Corporation, certain subsidiaries defined therein and National City Bank of Indiana; and (ii) Indenture dated December 22, 1997 among the Corporation, certain subsidiary guarantors and United States Trust Company of New York is less than $50,000,000, the holder of Class A Common Stock shall thereafter be entitled to one vote for each share of Class A Common Stock held. The “Original Holders” shall be Court Square Capital Limited (“Court Square”), Citicorp or Citibank, N.A. or any direct or indirect subsidiary of Citicorp or Citibank, N.A., in each case, to the extent that such entity is the owner of Class A Common Stock.

(b) In the event that the Original Holder of Class A Common Stock enters into any agreement, arrangement or understanding for the purpose of vesting in another person the right to vote the Class A Common Stock, including, without limitation, any voting trust, voting agreement or proxy, except for any agreement, arrangement or understanding to vote such shares of Class A Common Stock which arises solely from a revocable proxy or consent given to a person in response to a proxy or consent solicitation made pursuant to, and in accordance with, if applicable, the rules or regulations of the Securities Exchange Act of 1934, as amended, the Original Holder of Class A Common Stock shall thereafter be entitled to one vote for each share of Class A Common Stock held.

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(c) So long as Class A Common Stock is entitled to more than one vote per share, in any election of directors of the Corporation, 21% (rounded up to the nearest whole director) of the directors to be elected shall be elected by a majority of the votes cast by the holders of shares of outstanding Class B Common Stock other than Court Square or any person that is or is deemed to be in the consolidated tax group of which Court Square is a member.

(d) The holders of Class B Common Stock shall have the general right to vote for all purposes, including the election of directors, as provided by law. Each holder of Class B Common Stock shall be entitled to one vote for each share thereof held. Except as otherwise required by law, the holders of Class C Common Stock shall have no voting rights.

(2) Fundamental Changes. The Corporation may not amend its Certificate of Incorporation, enter into any plan of liquidation, recapitalization, reorganization, reclassification, consolidation or merger, sell all or substantially all of the Corporation’s assets or stock, in one transaction or a series of transactions, or enter into any other business combination without the approval of a majority of the holders of Class B Common Stock.

(3) Dividends. Holders of Common Stock shall be entitled to receive ratably on a per share basis such dividends as may be declared by the Board of Directors; provided that if dividends are declared which are payable in shares of Class A Common Stock, Class B Common Stock or Class C Common Stock, dividends shall be declared which are payable at the same rate on each class of Common Stock and the dividends payable in shares of Class A Common Stock shall be payable to holders of Class A Common Stock, the dividends payable in shares of Class B Common Stock shall be payable to holders of Class B Common Stock and the dividends payable in shares of Class C Common Stock shall be payable to holders of Class C Common Stock.

(4) Conversion.

(a) The Original Holder of Class A Common Stock shall be entitled to convert all of its Class A Common Stock into the same number of shares of Class B Common Stock; provided that upon any sale of Class A Common Stock to any person other than Citicorp, Citibank, N.A. or one or more of their direct or indirect subsidiaries, the Class A Common Stock shall automatically convert into the same number of shares of Class B Common Stock.

(b) Each record holder of Class B Common Stock shall be entitled to convert any or all of such holder’s Class B Common Stock into the same number of shares of Class C Common Stock and each record holder of Class C Common Stock shall be entitled to convert any or all of such holder’s Class C Common Stock into the same number of shares of Class B Common Stock; provided, however, that upon any conversion, all persons, including Court Square, that are or are deemed to be included in the consolidated tax group of

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which Court Square is a member may not cast more than 79% of the total votes entitled to be cast by all holders of Common Stock.

(c) Automatic Conversion. Notwithstanding the provisions of paragraph (4)(b), each share of Class C Common Stock shall automatically convert into the same number of shares of Class B Common Stock (i) immediately prior to its sale in a Qualified Public Offering; or (ii) at such time as such share of Class C Common Stock has been sold or transferred to any person other than a person that is or is deemed to be included in the consolidated tax group of which Court Square Capital Limited is a member. On the date of such automatic conversion, all rights with respect to the Class C Common Stock so converted shall terminate, except for the rights of the holders thereof, upon surrender of their certificate or certificates therefor, to receive certificates for an equal number of shares of Class B Common Stock. As soon as practicable after the date of such automatic conversion, the holders of shares of Class C Common Stock so converted shall surrender to the Corporation the certificate or certificates representing the shares so converted, and thereafter the Corporation shall cause to be issued and delivered to such holder a certificate for the number of shares of Class B Common Stock issuable upon such conversion in accordance with the provisions hereof. All certificates evidencing shares of Class C Common Stock which are automatically converted into Class B Common Stock in accordance with the provisions hereof shall, from and after the dates such certificates are so converted, be deemed to have been retired and cancelled and the shares of Class C Common Stock represented thereby converted into Class B Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates to the Corporation.

(d) Voluntary Conversion. Each voluntary conversion of shares of one class of Common Stock into shares of another class of Common Stock shall be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Corporation at any time during normal business hours, together with a written notice by the holder of such shares stating the number of shares that any such holder desires to convert into the other class of Common Stock. Such voluntary conversion shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received by the Corporation, and at such time the rights of any such holder with respect to the converted class of Common Stock shall cease and the person or persons in whose name or names the certificate or certificates for shares of the other class of Common Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of such other class of Common Stock represented thereby.

(e) Promptly after such surrender and the receipt by the Corporation of the written notice from the holder hereinbefore referred to, the Corporation shall issue and deliver in accordance with the surrendering holder’s instructions the certificate or certificates for the other class of Common Stock issuable upon such conversion and a certificate representing any shares of Common Stock which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not

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converted. The issuance of certificates for the other class of Common Stock upon conversion shall be made without charge to the holder or holders of such shares for any issuance tax (except stock transfer taxes) in respect thereof or other cost incurred by the Corporation in connection with such conversion.

(5) Transfers. The Corporation shall not close its books against the transfer of any share of Common Stock, or of any share of Common Stock issued or issuable upon conversion of shares of the other class of Common Stock, in any manner that would interfere with the timely conversion of such shares of Common Stock.

(6) Subdivision and Combinations of Shares. If the Corporation in any manner subdivides or combines the outstanding shares of the other classes of Common Stock, the outstanding shares of the other class of Common Stock shall be proportionately subdivided or combined.

(7) Reservation of Shares for Conversion. So long as any shares of any class of Common Stock are outstanding, the Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class B Common Stock and Class C Common Stock (or any shares of Class B Common Stock or Class C Common Stock which are held as treasury shares), the number of shares sufficient for issuance upon conversion of the outstanding shares of common stock.

(8) Distribution of Assets. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, holders of Common Stock shall be entitled to receive a pro rata portion of all of the remaining assets of the Corporation available for distribution to its stockholders based on the number of shares of Class A Common Stock, Class B Common Stock and Class C Common Stock outstanding after all amounts to which the holders of Series A Preferred Stock are entitled have been paid or set aside in cash for payment.

(9) Merger, etc. In connection with any merger, consolidation, or recapitalization in which holders of Class B Common Stock generally receive, or are given the opportunity to receive, consideration for their shares, all holders of Class A Common Stock or Class C Common Stock shall receive or be given the opportunity to receive, as the case may be, the same form of consideration for their shares in the same amount per share as is received by holders of Class B Common Stock.

5. Bylaws. In furtherance and not in limitation of the powers conferred by law, the board of directors of the Corporation is authorized to adopt, amend or repeal the bylaws of the Corporation, except as otherwise specifically provided therein, subject to the powers of the stockholders of the Corporation to amend or repeal any bylaws adopted by the board of directors.

6. Elections of Directors. Elections of directors need not be by written ballot unless and except to the extent the bylaws of the Corporation shall so provide.

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7. Business Combinations with Interested Stockholders. The Corporation elects not to be governed by section 203 of the Delaware General Corporation Law (“DGCL”) immediately upon filing of this certificate pursuant to DGCL section 203(b)(3).

8. Right to Amend. The Corporation reserves the right to amend or repeal any provision contained in this Certificate as the same may from time to time be in effect in the manner now or hereafter prescribed by law, and all rights, preferences and privileges conferred on stockholders, directors or others hereunder are subject to such reservation.

9. Limitation on Liability. The directors of the Corporation shall be entitled to the benefits of all limitations on the liability of directors generally that are now or hereafter become available under the DGCL. Without limiting the generality of the foregoing, to the fullest extent permitted by the DGCL, as it exists on the date hereof or as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Section 9 or any adoption of any provision of this Certificate of Incorporation inconsistent with this Section 9 shall be prospective only, and shall not affect, to the detriment of any director, any limitation on the personal liability of a director of the Corporation existing at the time of such repeal, modification or adoption.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Thomas J. Snyder, certify that:

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

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

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

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

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2003	/s/  Thomas J. Snyder
	Thomas J. Snyder             President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Rajesh K. Shah, certify that:

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

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

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

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

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2003	/s/  Rajesh K. Shah
	Rajesh K. Shah             Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Delco Remy International, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Snyder, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.

    /s/  Thomas J. Snyder

            Thomas J. Snyder

            President and Chief Executive Officer

November 12, 2003

A signed original of this written statement required by Section 906 has been provided to Delco Remy International, Inc. and will be retained by Delco Remy International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Delco Remy International, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rajesh K. Shah, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.

    /s/  Rajesh K. Shah         

            Rajesh K. Shah

            Executive Vice President and Chief Financial Officer

November 12, 2003

A signed original of this written statement required by Section 906 has been provided to Delco Remy International, Inc. and will be retained by Delco Remy International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.