content: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D. C. 20549
  
                                      FORM 10-Q
  (Mark One)
  
  / X /  Quarterly  Report  Pursuant  to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934 for the Quarterly Period Ended April 30, 1998
  
                                         OR
  
  /   /  Transition  Report  Pursuant  to  Section  13 or 15(d) of the  Securities
         Exchange Act of 1934 for the Transition Period From  ____________________
         to _________________
  
  
  Commission File Number             1-13683 
  
                          Delco Remy International, Inc. 
               (Exact name of registrant as specified in its charter)
  
               Delaware                                 35-1909253
  --------------------------------------------------------------------------------
  (State or other jurisdiction of                    (I.R.S. Employer
  incorporation or organization)                   Identification Number)
  
   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  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 the filing  requirements for
  the past 90 days. 
  
                                 Yes _X_    No ___
  
       Indicate the number of shares  outstanding of each of the issuer's  classes
  of common stock, as of the latest practicable date:
  
                                           Number of common shares outstanding
               Class                              as of May 29, 1998
       Common Stock - Class A                         16,712,839
       Common Stock - Class B                          7,733,674
  
                                          1
  <PAGE>
                            PART I. FINANCIAL INFORMATION
  
                                FINANCIAL STATEMENTS
  
                   Condensed Consolidated Statements of Operations
                   Delco Remy International, Inc. and Subsidiaries
                                      Unaudited
  
  <TABLE>
  <CAPTION>
                                                                            -----------------------------------------------------
                                                                               Three Month Period           Nine Month Period
                                                                                 Ended April 30               Ended April 30
                                                                            -----------------------------------------------------
                                                                               1998          1997           1998          1997
                                                                            =====================================================
                (in thousands of dollars, except per share amounts )
  <S>                                                                       <C>           <C>            <C>            <C>      
  Net sales                                                                 $ 217,083     $ 177,727      $ 619,362      $ 509,717
  Cost of goods sold                                                          172,349       139,639        497,287        401,681
                                                                            ---------     ---------      ---------      ---------
  Gross profit                                                                 44,734        38,088        122,075        108,036
  Selling, engineering, and administrative expenses                            24,461        22,713         66,627         65,782
                                                                            ---------     ---------      ---------      ---------
  Operating income                                                             20,273        15,375         55,448         42,254
  Interest expense                                                              9,748        10,124         30,398         28,839
                                                                            ---------     ---------      ---------      ---------
  
  Income from continuing operations before minority interest,
       income taxes, deemed dividend on preferred stock conversion,
       and preferred dividend requirements of subsidiary                       10,525         5,251         25,050         13,415
  Minority interest in income of subsidiaries                                     524           383          1,545            628
  Income taxes                                                                  4,074         1,917          9,769          5,264
  Deemed dividend on preferred stock conversion                                    --            --          1,639             --
  Preferred dividend requirement of subsidiary                                     --           410            645          1,236
                                                                            ---------     ---------      ---------      ---------
  Income from continuing operations                                             5,927         2,541         11,452          6,287
  Discontinued operations:
       Loss from operations of discontinued businesses
       (net of  applicable tax benefit)                                            --           194             --            520
                                                                            ---------     ---------      ---------      ---------
  Income before extraordinary items                                             5,927         2,347         11,452          5,767
  
  Extraordinary item:
       Write-off of debt issuance costs (net of applicable tax benefit)            --            --          1,803          2,351
                                                                            ---------     ---------      ---------      ---------
  Net  income                                                               $   5,927     $   2,347      $   9,649      $   3,416
                                                                            =========     =========      =========      =========
  
  
  Basic Earnings Per Common Share:
       Income from continuing operations                                    $    0.25     $    0.18      $    0.70      $    0.44
       Discontinued operations                                                     --         (0.01)            --          (0.04)
       Extraordinary items                                                         --            --          (0.11)         (0.16)
                                                                            ---------     ---------      ---------      ---------
       Net income                                                           $    0.25     $    0.16      $    0.59      $    0.24
                                                                            =========     =========      =========      =========
  
  Diluted Earnings Per Common Share:
       Income from continuing operations                                    $    0.23     $    0.15      $    0.61      $    0.37
       Discontinued operations                                                     --         (0.01)            --          (0.03)
       Extraordinary items                                                         --            --          (0.10)         (0.14)
                                                                            ---------     ---------      ---------      ---------
       Net income                                                           $    0.23     $    0.14      $    0.51      $    0.20
                                                                            =========     =========      =========      =========
  </TABLE>
  
              See notes to condensed consolidated financial statements
  
                                         2
  <PAGE>
                        Condensed Consolidated Balance Sheets
                   Delco Remy International, Inc. and Subsidiaries
                                      Unaudited
  
  <TABLE>
  <CAPTION>
                                                                   -------------------------
                                                                     April 30,      July 31,
                                                                       1998           1997
                                                                   =========================
                                                                   (in thousands of dollars)
  <S>                                                               <C>            <C>      
                             ASSETS
  
  Current assets:
       Cash and cash equivalents                                    $   9,127      $  10,050
       Trade accounts receivable, net                                 144,933        110,184
       Other receivables                                                8,227         13,376
       Inventories                                                    195,654        164,417
       Deferred income taxes                                           21,246         21,474
       Other current assets                                             7,053          4,643
                                                                    ---------      ---------
                 Total current assets                                 386,240        324,144
  
  Property and equipment                                              198,020        147,222
  Less accumulated depreciation                                        53,357         26,858
                                                                    ---------      ---------
                                                                      144,663        120,364
  
  Deferred financing costs                                             11,637          8,803
  Goodwill (less accumulated amortization)                            110,086         86,612
  Net assets held for disposal                                         23,521         25,279
  Investment in affiliates                                             11,160          3,119
  Other assets                                                          7,893          2,248
                                                                    ---------      ---------
                 Total assets                                       $ 695,200      $ 570,569
                                                                    =========      =========
  
              LIABILITIES AND STOCKHOLDERS' EQUITY
  
  Current liabilities:
       Account payable                                              $  93,924      $  88,578
       Accrued restructuring charges                                   26,498         37,377
       Liabilities related to discontinued operations                   1,909          3,324
       Other liabilities and accrued expenses                          52,794         40,317
       Current portion of long-term debt                                  595            507
                                                                    ---------      ---------
                   Total current liabilities                          175,720        170,103
  
  Long-term debt                                                      378,462        363,261
  Other noncurrent liabilities                                         33,033         22,899
  Minority interest in subsidiaries                                     9,299          8,032
  Redeemable exchangeable preferred stock of subsidiary                    --         16,071
  Stockholders' equity:
       Common Stock:
            Class A shares                                                167             88
            Class B shares                                                 77             65
       Paid-in capital                                                106,216          6,677
       Retained earnings (deficit)                                     (2,525)       (12,174)
       Cumulative translation adjustment                               (2,949)        (1,752)
       Stock purchase plan                                             (2,300)        (2,701)
                                                                    ---------      ---------
  
                     Total stockholders' equity                        98,686         (9,797)
                                                                    ---------      ---------
  
                     Total liabilities and stockholders' equity     $ 695,200      $ 570,569
                                                                    =========      =========
  </TABLE>
  
              See notes to condensed consolidated financial statements
  
                                         3
  <PAGE>
                   Condensed Consolidated Statements of Cash Flows
                   Delco Remy International, Inc. and Subsidiaries
                                      Unaudited
  
  <TABLE>
  <CAPTION>
                                                                                    -------------------------
                                                                                        Nine Month Period
                                                                                          Ended April 30
                                                                                    -------------------------
                                                                                       1998           1997
                                                                                    =========================
                                                                                    (in thousands of dollars)
  <S>                                                                               <C>            <C>      
  Operating activities:
  Net income                                                                        $   9,649      $   3,416
  Extraordinary items                                                                   1,803          2,351
  Adjustments to reconcile net income to net cash used in operating activities:
       Depreciation and amortization                                                   12,355         15,810
       Deferred income taxes                                                            1,379           (410)
       Non-cash interest expense                                                        2,024          4,101
       Minority interest in subsidiaries                                                1,545            628
       Preferred dividend requirement of subsidiary                                       645          1,236
       Deemed dividend on preferred stock conversion                                    1,639             --
       Changes in operating assets and liabilities, net of acquisitions:
          Accounts receivable                                                         (28,962)       (30,594)
          Inventories                                                                 (17,078)        (2,986)
          Accounts payable                                                              2,518        (10,747)
          Other current assets and liabilities                                          9,791         (2,131)
          Accrued restructuring charges                                               (10,879)          (907)
          Other non-current assets and liabilities, net                                 6,396         18,713
                                                                                    ---------      ---------
  
  Net cash used in operating activities                                                (7,175)        (1,520)
  
  Investing activities:
  Acquisitions, net of cash acquired                                                  (59,581)            --
  Purchase of property and equipment                                                  (15,039)       (29,065)
  Investment in affiliates                                                             (4,326)            --
                                                                                    ---------      ---------
  
  Net cash used in investing activities                                               (78,946)       (29,065)
  
  Financing activities:
  Proceeds from issuances of long-term debt                                           145,000        140,000
  Payments on long-term debt                                                         (153,500)      (112,669)
  Initial public offering of common stock                                              71,944             --
  Other financing activities                                                           22,951          3,258
                                                                                    ---------      ---------
  
  Net cash provided by financing activities                                            86,395         30,589
  
  Effect of exchange rate changes on cash                                              (1,197)            86
                                                                                    ---------      ---------
  
  Net increase (decrease) in cash and cash equivalents                                   (923)            90
  Cash and cash equivalents at beginning of period                                     10,050          3,406
                                                                                    ---------      ---------
  
  Cash and cash equivalents at end of period                                        $   9,127      $   3,496
                                                                                    =========      =========
  </TABLE>
  
              See notes to condensed consolidated financial statements
  
                                         4
  <PAGE>
                           DELCO REMY INTERNATIONAL, INC.
  
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
                                     (Unaudited)
                              (in thousands of dollars)
  
  
  1.   Basis of Presentation
  
  The accompanying unaudited condensed consolidated financial statements have been
  prepared in accordance with generally accepted accounting principles for interim
  financial  information and with the  instructions to Form 10-Q and Article 10 of
  Regulation  S-X.  Accordingly,  they do not include all of the  information  and
  footnotes  required by generally  accepted  accounting  principles  for complete
  financial statements. In the opinion of management,  all adjustments (consisting
  of normal recurring accruals)  considered necessary for a fair presentation have
  been included.  Operating  results for the three- and  nine-month  periods ended
  April  30,  1998  are not  necessarily  indicative  of the  results  that may be
  expected for the full fiscal year.  The balance  sheet at July 31, 1997 has been
  derived from the audited financial  statements at that date but does not include
  all of the information and footnotes required by generally  accepted  accounting
  principles for complete financial statements. For further information,  refer to
  the consolidated  financial  statements and footnotes thereto for the year ended
  July 31, 1997.
  
  2.   Inventories
  
  Inventories consist of the following:
  
            -----------------------------------------
                                April 30,    July 31,
                                  1998         1997
            -----------------------------------------
            Raw material        $ 85,503     $ 84,583
            Work-in-process       35,073       20,168
            Finished goods        75,078       59,666
                                --------     --------
            Total               $195,654     $164,417
            =========================================
  
  3.   Offerings
  
  On December  22, 1997,  the Company  issued  4,000,000  shares of Class A Common
  Stock in an initial  public  offering at $12.00 per share.  Also, on January 16,
  1998, the Company issued an additional 600,000 shares of Class A Common Stock at
  $12.00  per  share  as  a  result  of  the   underwriters'   exercise  of  their
  over-allotment  option.  In addition,  on December 22, 1997,  the Company issued
  $145,000  of Senior  Notes Due 2007 (the  Senior  Notes).  Net  proceeds  to the
  Company from such  Offerings,  after  deduction  of  associated  expenses,  were
  approximately $192,700.
  
  On January 29, 1998, the Company consummated the exchange of its unregistered 10
  5/8% Senior  Subordinated  Notes Due 2006 with  registered  debt having the same
  terms. There was no cash impact from this exchange.
  
                                          5
  <PAGE>
  4.   Acquisitions
  
  On  December  22,  1997,  the  Company  acquired  all of the  capital  stock  of
  Ballantrae  Corporation  ("Ballantrae")  for $53,900,  including assumed debt, a
  working capital  adjustment and fees and expenses.  Ballantrae  operates through
  two subsidiaries:  Tractech,  a leading producer of traction control systems for
  heavy duty original equipment  manufacturers and the aftermarket;  and Kraftube,
  Inc.,  a  tubing   assembly   business   which  sells   products  to  compressor
  manufacturers for commercial air conditioners and refrigeration  equipment.  The
  Company  exchanged  shares of its  common  stock  with a value of  approximately
  $23,000  for the  equity of  Ballantrae  and  repaid  approximately  $30,000  of
  Ballantrae's  debt.  The  acquisition  was treated as a purchase for  accounting
  purposes and resulted in goodwill of $24,495  which is being  amortized  over 35
  years.
  
  The unaudited pro forma  consolidated  results of operations for the nine months
  ended April 30, 1998 and 1997,  assuming the acquisition had been consummated on
  the first day of each such period, are as follows:
  
  --------------------------------------------------------------------------------
                                             Nine Months Ended   Nine Months Ended
                                               April 30, 1998     April 30, 1997
  --------------------------------------------------------------------------------
           Revenues                                $634,216          $587,700
           Income from continuing operations         14,810            12,894
           Net income                                13,007            10,023
  --------------------------------------------------------------------------------
  
  The pro forma  consolidated  financial  information  does not purport to present
  what the Company's  consolidated  results of operations would actually have been
  if the acquisition had occurred on the first day of the periods presented and is
  not intended to project future results of operations.
  
  On March 5,  1998,  the  Company  acquired  Atlantic  Reman  Limited  which is a
  Canadian Ford Authorized Remanufacturer for the Maritime Provinces in Canada. It
  remanufactures and distributes engines, starters, alternators and water pumps to
  Ford dealers as well as General Motors and Chrysler dealers in Canada. Pro forma
  consolidated  results are not presented for this acquisition  because the effect
  on the Company is not material.
  
  The Company also acquired the starter and alternator  operations of Lucas Varity
  in March,  1998. Located in England,  the Lucas line of remanufactured  starters
  and alternators is the market leader in the U.K.  independent  aftermarket.  Pro
  forma  consolidated  results are not presented for this acquisition  because the
  effect on the Company is not material.
  
  In  addition,  in March,  1998,  the Company  acquired 37% of Sahney Paris Rohne
  Ltd., an Indian remanufacturer of starters and alternators who sells principally
  to the Indian market. Pro forma consolidated  results are not presented for this
  acquisition because the effect on the Company is not material.
  
  5.   Recapitalization
  
  In  connection  with  the  above-mentioned  offerings  and  the  acquisition  of
  Ballantrae,  the Company completed  several related  transactions to restructure
  its  outstanding  debt and preferred stock (the  Recapitalization).  Significant
  components  of the  Recapitalization,  together with the  applicable  accounting
  effects were as follows:
  
                                          6
  <PAGE>
       o    The payment of the World Note: The early  extinguishment  of the World
            Note resulted in a write-off of the unamortized debt issuance costs of
            $1,803,   net  of  income  taxes,   which  was  accounted  for  as  an
            extraordinary loss.
       o    The payment in full of the GM Acquisition Note.
       o    The exchange of the Junior  Subordinated Notes for 2,358,490 shares of
            Class A Common Stock.
       o    The conversion of the  outstanding  shares of 8% preferred  stock of a
            subsidiary  into an 8%  subordinated  debenture of a subsidiary.  This
            transaction  resulted in deemed dividend on preferred stock conversion
            of $1,639 as shown on the face of the Condensed Consolidated Statement
            of Operations.
       o    The payment in full of $11,800 principal amount of subordinated  notes
            payable to certain former stockholders of acquired subsidiaries.
       o    The  amendment of the senior credit  facility in  connection  with the
            consummation of the Offerings.
       o    Payment of certain of the Ballantrae debt assumed in the Acquisition.
  
  6.   Share and Per Share Information
  
  On December 17, 1997,  the Company  authorized a  16.8-to-one  stock split which
  occurred  on  December  19,  1997.  All share and per  share  amounts  have been
  adjusted to reflect  this split.  The basic and diluted  earnings  per share are
  determined using the numerator and denominator calculated as follows:
  <TABLE>
  <CAPTION>
  ------------------------------------------------------------------------------------------------------------------
                                                                         Three-Month Period     Nine-Month Period
                                                                           Ended April 30,       Ended April 30,
  -----------------------------------------------------------------------------------------------------------------
                                                                          1998       1997        1998         1997
                                                                        -------------------------------------------
  <S>                                                                   <C>         <C>         <C>         <C>    
  Numerator:
  Income from continuing operations                                     $ 5,927     $ 2,541     $11,452     $ 6,287
  Loss from operations of discontinued businesses                            --         194          --         520
  Extraordinary items                                                        --          --       1,803       2,351
                                                                        -------------------------------------------
  Numerator for basic and diluted earnings per share                    $ 5,927     $ 2,347     $ 9,649     $ 3,416
  
  Denominator:
  Denominator for basic earnings per share (weighted                     23,463      14,279      16,339      14,273
  average shares)
  Effect of dilutive securities:
      Warrants                                                            1,680       1,680       1,680       1,680
      Employee stock options                                                 62          --          24          --
      Stock purchase plan                                                   840       1,004         831         944
                                                                        -------------------------------------------
  Denominator for diluted earnings per share
    (weighted average shares and assumed conversions)                    26,045      16,963      18,874      16,897
  =================================================================================================================
  </TABLE>
  
                                         7
  <PAGE>
  
  7.   Financial Information for Subsidiary Guarantors and Non-Guarantor
       Subsidiaries
  
  The Company conducts a significant portion of its business through subsidiaries.
  The Senior Notes and the Senior Subordinated Notes are fully and unconditionally
  guaranteed,  jointly and severally,  by certain direct and indirect subsidiaries
  (the Subsidiary Guarantors). The Company owns directly or indirectly 100% of the
  voting securities of each of the Subsidiary Guarantors. Certain of the Company's
  subsidiaries do not guarantee the Senior Notes or the Senior  Subordinated Notes
  (the  Non-Guarantor  Subsidiaries).  The claims of  creditors  of  Non-Guarantor
  Subsidiaries  have priority over the rights of the Company to receive  dividends
  or distributions from such subsidiaries.
  
  Presented  below  is  condensed  consolidating  financial  information  for  the
  Company, the Subsidiary  Guarantors and the Non-Guarantor  Subsidiaries at April
  30, 1998 and July 31, 1997 and for the three- and nine-month periods ended April
  30, 1998 and 1997.
  
  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 each of the  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.              Autovill RT Ltd.
  Remy International, Inc.              Power Investments Canada Ltd.
  Reman Holdings, Inc.                  Remy UK Limited
  Nabco, Inc.                           Delco Remy International (Europe) GmbH
  The A & B Group, Inc.                 Remy India Holdings, Inc.
  A & B Enterprises, Inc.               Remy Korea Holdings, Inc.
  Dalex, Inc.                           681287 Alberta Ltd.
  A & B Cores, Inc.                     World Wide Automotive Distributors, Inc.
  R & L Tool Company, Inc.              Autovill Holdings, Inc.
  MCA, Inc. of Mississippi              Tractech (Ireland) Ltd.
  Power Investments, Inc.               Kraftube, Inc.
  Franklin Power Products, Inc.         Delco Remy U.K. Ltd.
  International Fuel Systems, Inc.      Central Precision - Atlantic Reman Limited
  Marine Drive Systems, Inc.
  Marine Corporation of America
  Powrbilt Products, Inc.
  World Wide Automotive, Inc.
  Ballantrae Corporation
  Tractech Inc.
  --------------------------------------------------------------------------------
  
                                          8
  <PAGE>
                           Delco Remy International, Inc.
                   Condensed Consolidated Statement of Operations
                      For the Three Months Ended April 30, 1998
                              (in thousands of dollars)
  <TABLE>
  <CAPTION>
                                                           Delco Remy
                                                         International,
                                                              Inc.                         Non-
                                                            (Parent      Subsidiary     Guarantor
                                                         Company Only)   Guarantors    Subsidiaries      Eliminations    Consolidated
                                                         -----------------------------------------------------------------------------
  <S>                                                     <C>             <C>            <C>             <C>                <C>     
  Net sales                                               $     --        $220,557       $ 40,372        $(43,846)(a)       $217,083
  Cost of goods sold                                            --         182,453         33,742         (43,846)(a)        172,349
                                                         -----------------------------------------------------------------------------
  
  Gross profit                                                  --          38,104          6,630              --             44,734
  
  Selling, engineering, and administrative expenses           (706)         22,008          3,159              --             24,461
                                                         -----------------------------------------------------------------------------
  Operating income                                             706          16,096          3,471              --             20,273
  Interest expense (income)                                  7,154           2,625            (31)             --              9,748
                                                         -----------------------------------------------------------------------------
  
  Income (loss) from continuing operations
     before income taxes, preferred dividend
     requirements of subsidiary, minority
     interest and deemed dividend on preferred
     stock conversion                                       (6,448)         13,471          3,502              --             10,525
  Minority interest in income of subsidiaries                   --             446             78              --                524
  Equity in earnings of subsidiaries                         9,285              --             --          (9,285)(b)             --
  Income tax expense (benefit)                              (3,090)          6,071          1,093              --              4,074
                                                         -----------------------------------------------------------------------------
  Income from continuing operations                          5,927           6,954          2,331          (9,285)             5,927
                                                         -----------------------------------------------------------------------------
  
  Net income                                              $  5,927        $  6,954       $  2,331        $ (9,285)          $  5,927
                                                         =============================================================================
  <FN>
  ------------------------------
  (a)  Elimination of intercompany sales and cost of sales.
  (b)  Elimination of equity in net income from consolidated subsidiaries.
  </FN>
  </TABLE>
  
                                         9
  <PAGE>
                           Delco Remy International, Inc.
                   Condensed Consolidated Statement of Operations
                      For the Nine Months Ended April 30, 1998
                              (in thousands of dollars)
  <TABLE>
  <CAPTION>
                                                         Delco Remy
                                                       International,
                                                             Inc.                             Non-
                                                           (Parent         Subsidiary      Guarantor
                                                        Company Only)      Guarantors     Subsidiaries     Eliminations   Consolidated
                                                      --------------------------------------------------------------------------------
  <S>                                                     <C>              <C>             <C>             <C>              <C>      
  Net sales                                               $      --        $ 633,797       $  94,312       $(108,747)(a)    $ 619,362
  Cost of goods sold                                             --          526,630          79,404        (108,747)(a)      497,287
                                                      --------------------------------------------------------------------------------
  
  Gross profit                                                   --          107,167          14,908              --          122,075
  
  Selling, engineering, and administrative expenses             807           57,943           7,877              --           66,627
                                                      --------------------------------------------------------------------------------
  Operating income (loss)                                      (807)          49,224           7,031              --           55,448
  Interest expense (income)                                  17,722           12,617              59              --           30,398
                                                      --------------------------------------------------------------------------------
  
  Income (loss) from continuing operations before
     income taxes, preferred dividend
     requirements of subsidiary, minority
     interest and deemed dividend on preferred
     stock conversion                                       (18,529)          36,607           6,972              --           25,050
  Minority interest in income of subsidiaries                    --            1,390             155              --            1,545
  Equity in earnings of subsidiaries                         20,350               --              --         (20,350)(b)           --
   Income tax expense (benefit)                              (7,828)          15,143           2,454              --            9,769
  Deemed dividend on preferred stock conversion                  --               --              --           1,639 (c)        1,639
  Preferred dividend requirement of subsidiary                   --               --              --             645 (c)          645
                                                      --------------------------------------------------------------------------------
  
  Income from continuing operations                           9,649           20,074           4,363         (22,634)          11,452
  
  Extraordinary item:
     Write-off of debt issuance costs
     (net of applicable income tax benefit)                      --            1,803              --              --            1,803
                                                      ================================================================================
  
  Net income                                              $   9,649        $  18,271       $   4,363       $ (22,634)       $   9,649
                                                      ================================================================================
  <FN>
  ----------------------
  (a)  Elimination of intercompany sales and cost of sales.
  (b)  Elimination of equity in net income from consolidated subsidiaries.
  (c)  Recording  of  preferred  dividend  requirement  of  subsidiary  and deemed
       dividend on preferred stock conversion.
  </FN>
  </TABLE>
  
                                         10
  <PAGE>
                           Delco Remy International, Inc.
                   Condensed Consolidated Statement of Operations
                      For the Three Months Ended April 30, 1997
                              (in thousands of dollars)
  <TABLE>
  <CAPTION>
                                                           Delco Remy
                                                         International,
                                                              Inc.                          Non-
                                                            (Parent        Subsidiary    Guarantor
                                                         Company Only)     Guarantors   Subsidiaries     Eliminations   Consolidated
                                                        ------------------------------------------------------------------------------
  <S>                                                      <C>             <C>            <C>             <C>             <C>     
  Net sales                                                $     --        $182,398       $ 15,989        $(20,660)(a)    $177,727
  Cost of goods sold                                             --         146,594         13,705         (20,660)(a)     139,639
                                                        ------------------------------------------------------------------------------
  
  Gross profit                                                   --          35,804          2,284              --          38,088
  
  Selling, engineering, and administrative expenses           1,081          18,867          2,765              --          22,713
                                                        ------------------------------------------------------------------------------
  Operating income (loss)                                    (1,081)         16,937           (481)             --          15,375
  Interest expense                                            4,705           5,309            110              --          10,124
                                                        ------------------------------------------------------------------------------
  
  Income (loss) from continuing operations
     before income taxes, preferred dividend
     requirements of subsidiary, minority interest           (5,786)         11,628           (591)             --           5,251
  Minority interest in income (loss) of subsidiaries             --             410            (27)             --             383
  Equity in earnings of subsidiaries                          5,554              --             --          (5,554)(b)          --
  Income tax expense (benefit)                               (2,587)          4,428             76              --           1,917
  Preferred dividend requirement of subsidiary                   --              --             --             410 (c)         410
                                                        ------------------------------------------------------------------------------
  
  Income (loss) from continuing operations                    2,355           6,790           (640)         (5,964)          2,541
  
  Discontinued operations:
     Loss from operations of discontinued businesses
     (net of applicable income tax benefit)                       8             186             --              --             194
                                                        ------------------------------------------------------------------------------
  
  Net income (loss)                                        $  2,347        $  6,604       $   (640)       $ (5,964)       $  2,347
                                                        ==============================================================================
  
  <FN>
  --------------------------------
  (a)  Elimination of intercompany sales and cost of sales.
  (b)  Elimination of equity in net income (loss) from consolidated subsidiaries.
  (c)  Recording of preferred dividend requirement of subsidiary.
  </FN>
  </TABLE>
  
                                         11
  <PAGE>
                           Delco Remy International, Inc.
                   Condensed Consolidated Statement of Operations
                      For the Nine Months Ended April 30, 1997
                              (in thousands of dollars)
  <TABLE>
  <CAPTION>
                                                           Delco Remy
                                                         International,
                                                              Inc.                       Non-
                                                            (Parent      Subsidiary   Guarantor
                                                         Company Only)   Guarantors  Subsidiaries  Eliminations    Consolidated
                                                         ----------------------------------------------------------------------
  <S>                                                     <C>            <C>           <C>            <C>            <C>     
  Net sales                                               $     --       $522,751      $ 45,089       $(58,123)(a)   $509,717
  Cost of goods sold                                            --        423,615        36,189        (58,123)(a)    401,681
                                                         ----------------------------------------------------------------------
  
  Gross profit                                                  --         99,136         8,900             --        108,036
  
  Selling, engineering, and administrative expenses          2,556         55,796         7,430             --         65,782
                                                         ----------------------------------------------------------------------
  Operating income (loss)                                   (2,556)        43,340         1,470             --         42,254
  Interest expense                                          14,093         14,563           183             --         28,839
                                                         ----------------------------------------------------------------------
  
  Income (loss) from continuing operations before
    income taxes, preferred dividend
    requirements of subsidiary, minority
    interest and deemed dividend on preferred
    stock conversion                                       (16,649)        28,777         1,287             --         13,415
  Minority interest in income (loss) of subsidiaries            --            655           (27)            --            628
  Equity in earnings of subsidiaries                        13,753             --            --        (13,753)(b)         --
  Income tax expense (benefit)                              (6,564)        11,158           670             --          5,264
  Preferred dividend requirement of subsidiary                  --             --            --          1,236 (c)      1,236
                                                         ----------------------------------------------------------------------
  
  Income from continuing operations                          3,668         16,964           644        (14,989)         6,287
  
  Discontinued operations:
    Loss from operations of discontinued businesses
    (net of applicable income tax benefit)                      --            520             --            --            520
  Extraordinary item:
    Write-off of debt issuance costs
    (net of applicable income tax benefit)                     252          2,099            --             --          2,351
                                                         ----------------------------------------------------------------------
  
  Net income                                              $  3,416       $ 14,345      $    644       $(14,989)      $  3,416
                                                         ----------------------------------------------------------------------
  <FN>
  --------------------
  (a)  Elimination of intercompany sales and cost of sales.
  (b)  Elimination of equity in net income from consolidated subsidiaries.
  (c)  Recording of preferred dividend requirement of subsidiary.
  </FN>
  </TABLE>
  
                                         12
  
  <PAGE>
                           Delco Remy International, Inc.
                       Condensed Consolidating Balance Sheet
                                   April 30, 1998
                             (in thousands of dollars)
  <TABLE>
  <CAPTION>
                                                           Delco Remy
                                                         International,
                                                              Inc.                           Non-
                                                            (Parent       Subsidiary      Guarantor
                                                          Company Only)   Guarantors     Subsidiaries     Eliminations    Consolidated
                                                        ------------------------------------------------------------------------------
  <S>                                                      <C>             <C>             <C>             <C>              <C>      
  Assets:
  Current assets:
       Cash and cash equivalents                           $      --       $     177       $   8,950       $      --        $   9,127
       Trade accounts receivable, net                             --         127,770          17,163              --          144,933
       Affiliate accounts receivable                         114,524          46,996           7,349        (168,869)(a)           --
       Other receivables                                          --           3,921           4,306              --            8,227
       Inventories                                                --         164,000          31,654              --          195,654
       Deferred income taxes                                   4,838          16,260             148              --           21,246
       Other current assets                                       --           6,526             527              --            7,053
                                                        ------------------------------------------------------------------------------
           Total current assets                              119,362         365,650          70,097        (168,869)         386,240
  Property and equipment                                          20         167,505          30,495              --          198,020
  Less accumulated depreciation                                  (13)        (50,645)         (2,699)             --          (53,357)
                                                        ------------------------------------------------------------------------------
                                                                   7         116,860          27,796              --          144,663
  Deferred financing costs, net                                9,592           1,523             522              --           11,637
  Goodwill, net                                                   --          93,121          16,965              --          110,086
  Net assets held for disposal                                    --          23,521              --              --           23,521
  Investment in affiliates                                   256,190              --              --        (245,030)(b)(c)    11,160
  Other assets                                                 9,912          (3,164)          1,145                            7,893
                                                        ------------------------------------------------------------------------------
           Total assets                                    $ 395,063       $ 597,511       $ 116,525       $(413,899)       $ 695,200
                                                        ==============================================================================
  
  
  Liabilities and shareholders' equity:
  Current liabilities:
       Accounts payable                                    $     130       $  81,435       $  12,359       $      --        $  93,924
       Affiliate accounts payable                                 --         149,734          19,135        (168,869)(a)           --
       Accrued restructuring charges                              --          26,498              --              --           26,498
       Liabilities related to discontinued operations             --           1,909              --              --            1,909
       Other liabilities and accrued expenses                 (6,708)         49,817           9,685              --           52,794
       Current portion of long-term debt                          --             595              --              --              595
                                                        ------------------------------------------------------------------------------
           Total current liabilities                          (6,578)        309,988          41,179        (168,869)         175,720
  Long-term debt, less current portion                       285,000          92,814             648              --          378,462
  Other non-current liabilities                               15,007          18,026              --              --           33,033
  Minority interest in subsidiaries                               --           7,858           1,441              --            9,299
  Shareholders' equity:
       Common stock:
           Class A shares                                        167              --              --              --              167
           Class B shares                                         77              --              --              --               77
       Paid-in capital                                       106,216              --              --              --          106,216
       Subsidiary investments                                     --         154,625          66,504        (221,129)(b)           --
       Retained earnings (deficit)                            (2,526)         14,200           9,702         (23,901)(c)       (2,525)
       Cumulative translation adjustment                          --              --          (2,949)             --           (2,949)
       Stock purchase plan                                    (2,300)             --              --              --           (2,300)
                                                        ------------------------------------------------------------------------------
           Total shareholders' equity                        101,634         168,825          73,257        (245,030)          98,686
                                                        ------------------------------------------------------------------------------
           Total liabilities and shareholders' equity      $ 395,063       $ 597,511       $ 116,525       $(413,899)       $ 695,200
                                                        ==============================================================================
  <FN>
  
  -----------------------------------------------
  (a)  Eliminations of intercompany receivables and payables.
  (b)  Elimination of investments in subsidiaries.
  (c)  Elimination of investments in subsidiaries' earnings.
  </FN>
  </TABLE>
  
                                         13
  <PAGE>
                           Delco Remy International, Inc.
                        Condensed Consolidating Balance Sheet
                                    July 31, 1997
                              (in thousands of dollars)
  
  <TABLE>
  <CAPTION>
                                                           Delco Remy
                                                         International,
                                                              Inc.                          Non-
                                                            (Parent      Subsidiary      Guarantor
                                                         Company Only)   Guarantors     Subsidiaries      Eliminations   Consolidated
                                                       -------------------------------------------------------------------------------
  <S>                                                     <C>             <C>             <C>             <C>               <C>      
  Assets:
  Current assets:
       Cash and cash equivalents                          $      --       $   1,504       $   8,546       $      --         $  10,050
       Trade accounts receivable                                 --          99,745          10,439              --           110,184
       Affiliate accounts receivable, net                        --          33,409               2         (33,411)(a)            --
       Other receivables                                         --          12,494             882              --            13,376
       Inventories                                               --         145,035          19,382              --           164,417
       Deferred income taxes                                  4,315          17,159              --              --            21,474
       Other current assets                                      --           4,163             480              --             4,643
                                                       -------------------------------------------------------------------------------
            Total current assets                              4,315         313,509          39,731         (33,411)          324,144
  Property and equipment                                         20         133,769          13,433              --           147,222
  Less accumulated depreciation                                 (13)        (22,353)         (4,492)             --           (26,858)
                                                       -------------------------------------------------------------------------------
                                                                  7         111,416           8,941              --           120,364
  Deferred financing costs                                    5,148           3,655              --              --             8,803
  Goodwill, net                                                  --          76,437          10,175              --            86,612
  Net assets held for disposal                                   --          25,279              --              --            25,279
  Investment in affiliates                                  171,614              --              --        (168,495)(b)(c)      3,119
  Other assets                                                1,953          (1,463)          1,758              --             2,248
                                                       -------------------------------------------------------------------------------
            Total assets                                  $ 183,037       $ 528,833       $  60,605       $(201,906)        $ 570,569
                                                       ===============================================================================
  
  Liabilities and shareholders' equity:
  Current Liabilities:
       Accounts payable                                   $     195       $  82,585       $   5,798       $      --         $  88,578
       Affiliate accounts payable                            15,684           6,152          11,575         (33,411)(a)            --
       Accrued restructuring charges                             --          37,377              --              --            37,377
       Liabilities related to discontinued operations            --           3,324              --              --             3,324
       Other liabilities and accrued expenses                (9,815)         44,141           5,991              --            40,317
       Current portion of long-term debt                         --             506               1              --               507
                                                       -------------------------------------------------------------------------------
            Total current liabilities                         6,064         174,085          23,365         (33,411)          170,103
  Long-term debt, less current portion                      173,511         189,669              81              --           363,261
  Other non-current liabilities                              11,507          11,336              56              --            22,899
  Redeemable convertible preferred stock                         --          16,071              --              --            16,071
  Minority interest in subsidiaries                              --           6,504           1,528              --             8,032
  Shareholders' equity (deficit):
       Common stock:
            Class A shares                                       88              --              --              --                88
            Class B shares                                       65              --              --              --                65
       Paid-in capital                                        6,677              --              --              --             6,677
       Subsidiary investments                                    --         127,665          31,970        (159,635)(b)            --
       Retained earnings (deficit)                          (12,174)          3,503           5,357          (8,860)(c)       (12,174)
       Cumulative translation adjustment                         --              --          (1,752)             --            (1,752)
       Stock purchase plan                                   (2,701)             --              --              --            (2,701)
                                                       -------------------------------------------------------------------------------
            Total shareholders' equity (deficit)             (8,045)        131,168          35,575        (168,495)           (9,797)
                                                       -------------------------------------------------------------------------------
            Total liabilities and shareholders' equity    $ 183,037       $ 528,833       $  60,605       $(201,906)        $ 570,569
                                                       ===============================================================================
  <FN>
  ----------------------------
  (a)  Eliminations of intercompany receivables and payables.
  (b)  Elimination of investments in subsidiaries.
  (c)  Elimination of investments in subsidiaries' earnings.
  </FN>
  </TABLE>
  
                                         14
  <PAGE>
                           Delco Remy International, Inc.
                   Condensed Consolidating Statement of Cash Flows
                      For the Nine Months Ended April 30, 1998
                              (in thousands of dollars)
  
  <TABLE>
  <CAPTION>
                                                            Delco Remy
                                                          International,
                                                                Inc.                         Non-
                                                              (Parent     Subsidiary      Guarantor
                                                           Company Only)  Guarantors     Subsidiaries   Eliminations   Consolidated
                                                          --------------------------------------------------------------------------
  <S>                                                       <C>            <C>            <C>            <C>            <C>      
  Operating Activities:
  Net income                                                $   9,649      $  18,271      $   4,363      $ (22,634)     $   9,649
  Extraordinary item                                               --          1,803             --             --          1,803
  Adjustments to reconcile  net income to net
       cash provided by (used in) operating activities:
            Depreciation and amortization                          --         11,248          1,107             --         12,355
            Equity in earnings of subsidiaries                (20,350)            --             --         20,350 (a)         --
            Deferred income taxes                              (4,990)         7,457         (1,088)            --          1,379
            Non-cash interest expense                           1,705            319             --             --          2,024
            Minority interest in subsidiaries                      --          1,390            155             --          1,545
            Preferred dividend requirement of
              subsidiary                                           --             --             --            645 (b)        645
            Deemed dividend on preferred
              stock conversion                                     --             --             --          1,639 (b)      1,639
            Changes in operating assets and
              liabilities, net of acquisitions:
               Accounts receivable                                 --        (24,711)        (4,251)            --        (28,962)
               Inventories                                         --        (12,230)        (4,848)            --        (17,078)
               Accounts payable                                   (65)        (2,721)         5,304             --          2,518
               Intercompany accounts                         (130,208)       123,666          6,542             --             --
               Other current assets and liabilities             3,082          3,944          2,765             --          9,791
               Accrued restructuring                               --        (10,879)            --             --        (10,879)
               Other non-current assets and
                 liabilities, net                              (4,924)        11,992           (672)            --          6,396
                                                          --------------------------------------------------------------------------
  Net cash (used in) provided by operating activities        (146,101)       129,549          9,377             --         (7,175)
  
  Investing activities:
  Acquisitions, net of cash acquired                          (58,217)            --         (1,364)            --        (59,581)
  Purchase of property and equipment                               --         (8,641)        (6,398)            --        (15,039)
  Investments in affiliates                                    (4,326)            --             --             --         (4,326)
                                                          --------------------------------------------------------------------------
  Net cash used in investing activities                       (62,543)        (8,641)        (7,762)            --        (78,946)
  
  Financing activities:
  
  Proceeds from issurance of long term debt                   145,000             --             --             --        145,000
  Payments on long-term debt                                   (8,300)      (145,186)           (14)            --       (153,500)
  Proceeds from initial public offering                        71,944             --             --             --         71,944
  Other financing activities                                       --         22,951             --             --         22,951
                                                          --------------------------------------------------------------------------
  Net cash provided by (used in) financing activities         208,644       (122,235)           (14)            --         86,395
  
  Effect of exhange rate changes on cash                           --             --         (1,197)            --         (1,197)
                                                          --------------------------------------------------------------------------
  Net increase (decrease) in cash and cash equivalents             --         (1,327)           404             --           (923)
  
  Cash and cash equivalents at beginning of period                 --          1,504          8,546             --         10,050
                                                          --------------------------------------------------------------------------
  Cash and cash equivalents at end of period                $      --      $     177      $   8,950      $      --      $   9,127
                                                          ==========================================================================
  <FN>
  ----------------------------------
  (a)  Elimination of equity in earnings of subsidiary.
  (b)  Recording  of  preferred  dividend  requirement  of  subsidiary  and deemed
       dividend on preferred stock conversion.
  </FN>
  </TABLE>
  
                                         15
  <PAGE>
                           Delco Remy International, Inc.
                   Condensed Consolidating Statement of Cash Flows
                      For the Nine Months Ended April 30, 1998
                              (in thousands of dollars)
  <TABLE>
  <CAPTION>
                                                          Delco Remy
                                                        International,
                                                              Inc.                          Non-
                                                            (Parent      Subsidiary      Guarantor
                                                         Company Only)   Guarantors    Subsidiaries    Eliminations   Consolidated
                                                        ----------------------------------------------------------------------------
  <S>                                                      <C>            <C>            <C>            <C>            <C>      
  Operating Activities:
  Net income                                               $   3,416      $  14,345      $     644      $ (14,989)     $   3,416
  Extraordinary item                                             252          2,099             --             --          2,351
  Adjustments to reconcile  net income to net cash
    provided by (used in) operating activities:
       Depreciation and amortization                              --         15,855            (45)            --         15,810
       Equity in earnings of subsidiaries                    (13,753)            --             --         13,753 (a)         --
       Deferred income taxes                                   7,614         (7,065)          (959)            --           (410)
       Non-cash interest expense                               1,721          2,380             --             --          4,101
       Minority interest in subsidiaries                          --            655            (27)            --            628
       Preferred dividend requirement of
          subsidiary                                              --             --             --          1,236 (b)      1,236
       Changes in operating assets and
          liabilities, net of acquisitions:
               Accounts receivable                                --        (28,582)        (2,012)            --        (30,594)
               Inventories                                        --         (1,194)        (1,792)            --         (2,986)
               Accounts payable                                  (67)       (12,567)         1,887             --        (10,747)
               Intercompany accounts                        (103,690)       103,563            127             --             --
               Other current assets and liabilities           (5,056)         2,884             41             --         (2,131)
               Accrued restructuring                              --           (907)            --             --           (907)
               Other non-current assets and
                 liabilities, net                            (14,505)        30,763          2,455             --         18,713
                                                        ----------------------------------------------------------------------------
  Net cash provided by (used in) operating activities       (124,068)       122,229            319             --         (1,520)
  
  Investing activities:
  Purchasing of property and equipment                            --        (24,566)        (4,499)            --        (29,065)
                                                        ----------------------------------------------------------------------------
  Net cash used in investing activities                           --        (24,566)        (4,499)            --        (29,065)
  
  Financing activities:
  
  Proceeds from issurance of long term debt                  140,000             --             --             --        140,000
  Payments on long term debt                                 (16,000)       (96,669)            --             --       (112,669)
  Other financing activities                                      --          3,170             88             --          3,258
                                                        ----------------------------------------------------------------------------
  Net cash provided by (used in) financing activities        124,000        (93,499)            88             --         30,589
  
  Effect of exhange rate changes on cash                          --             --             86             --             86
                                                        ----------------------------------------------------------------------------
  Net increase (decrease) in cash and cash equivalents           (68)         4,164         (4,006)            --             90
  
  Cash and cash equivalents at beginning  of period               68          1,434          1,904             --          3,406
                                                        ----------------------------------------------------------------------------
  Cash and cash equivalents at end of period               $      --      $   5,598      $  (2,102)     $      --      $   3,496
                                                        ============================================================================
  <FN>
  ------------------
  (a)  Elimination of equity in earnings of subsidiary.
  (b)  Recording of preferred dividend requirement of subsidiary.
  </FN>
  </TABLE>
  
                                         16
  <PAGE>
                                       ITEM 2
  
                       Management's Discussion and Analysis of
                    Financial Condition and Results of Operations
  
  <TABLE>
  <CAPTION>
  Results of Operations:
  
                                                             Three Month Period                         Nine Month Period
                                                               Ended April 30                            Ended April 30
                                                  --------------------------------------  ----------------------------------------
                                                          1998                1997                 1998                 1997
                                                  ------------------ -------------------  -------------------- -------------------
                                                   Amount       %      Amount        %      Amount       %       Amount        %
                                                  ================== ===================  ==================== ===================
                                                                  (in thousands of dollars, except per share amounts )
  
  <S>                                             <C>        <C>      <C>         <C>      <C>         <C>      <C>         <C>   
  Net sales                                       $217,083   100.0%   $177,727    100.0%   $619,362    100.0%   $509,717    100.0%
  
  Cost of goods sold                               172,349    79.4%    139,639     78.6%    497,287     80.3%    401,681     78.8%
                                                  ------------------ -------------------  -------------------- -------------------
  
  Gross profit                                      44,734    20.6%     38,088     21.4%    122,075     19.7%    108,036     21.2%
  
  Selling, engineering, and administrative          24,461    11.3%     22,713     12.8%     66,627     10.8%     65,782     12.9%
                                                  ------------------ -------------------  -------------------- -------------------
  
  Operating income                                  20,273     9.3%     15,375      8.7%     55,448      9.0%     42,254      8.3%
  
  Interest expense                                   9,748     4.5%     10,124      5.7%     30,398      4.9%     28,839      5.7%
  
  Minority interest in income of subsidiaries          524     0.2%        383      0.2%      1,545      0.2%        628      0.1%
  
  Income taxes                                       4,074     1.9%      1,917      1.1%      9,769      1.6%      5,264      1.0%
  
  Deemed dividend on preferred stock conversion         --                  --                1,639                   --
  
  Preferred dividend requirement of subsidiary          --                 410      0.2%        645      0.1%      1,236      0.2%
                                                  ------------------ -------------------  -------------------- -------------------
  
  Income from continuing operations                  5,927     2.7%      2,541      1.4%     11,452      1.8%      6,287      1.2%
  
  Discontinued operations:
    Loss from discontinued businesses
    (net of  applicable tax benefit)                    --                 194      0.1%         --      0.0%        520      0.1%
  Extraordinary item:
    Write-off of debt issuance costs net of tax         --                  --                1,803                2,351
                                                  ------------------ -------------------  -------------------- -------------------
  
  Net  income                                      $ 5,927     2.7%    $ 2,347      1.3%    $ 9,649      1.6%    $ 3,416      0.7%
                                                  ================== ===================  ==================== ===================
  
  
  Adjusted net income
    Net income                                     $ 5,927             $ 2,347              $ 9,649              $ 3,416
    Non-recurring deemed dividend on preferred
      stock conversion   (A)                            --                  --                1,639                   --
    Loss from discontinued operations                   --                 194                   --                  520
    Extraordinary items                                 --                  --                1,803                2,351
                                                   -------             -------             --------              -------
    Adjusted net income                            $ 5,927             $ 2,541             $ 13,091              $ 6,287
                                                   =======             =======             ========              =======
  
  Adjusted earnings per share
    Adjusted net income                            $  0.23             $  0.10             $   0.50              $  0.24
  
    Adjusted weighted shares outstanding (B)        26,087              26,087               26,087               26,087
  
  <FN>
  
  Notes:
  
  (A)  Non-recurring, non-cash charge resulting from the offerings.
  
  (B)  Adjusted weighted shares  outstanding  assumes the exercise of all warrants
       and all  shares  outstanding  at April 30,  1998 were  outstanding  for all
       periods.
  </FN>
  </TABLE>
  
                                         17
  <PAGE>
  Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
  
       Net Sales Net sales were $217.1 for the three  months ended April 30, 1998,
  an increase of $39.4, or 22.2%,  from $177.7 for the comparable  period of 1997.
  Part of the increase resulted from the inclusion of World Wide and Ballantrae in
  the amount of $28.3.  Additionally a strong market for heavy duty OEM electrical
  products as well as automotive OEM demand from General Motors contributed to the
  net sales increase.
  
       Gross  Profit  Gross  profit was $44.7 for the three months ended April 30,
  1998, an increase of $6.6,  or 17.3%,  from $38.1 for the same period last year.
  The increase was attributable to the inclusion of World Wide  Automotive,  which
  was purchased in May, 1997 and Ballantrae, purchased in December, 1997. If World
  Wide and Ballantrae  had not been included,  the Gross Profit percent would have
  been  20.3%,  or  about a 1.1  percentage  point  decrease  from  21.4%  for the
  comparable period in 1997. The primary factors  contributing to this change were
  start-up costs for new focus factories and the reclassification of certain costs
  included in SE&A in the prior year but charged to cost of sales in fiscal  1998.
  These charges were  partially  offset by continued  strong OEM volume as well as
  cost reductions in the focus factories.
  
       Selling,  Engineering and Administrative Expenses Selling,  engineering and
  administrative  (SE&A)  expenses were $24.5 for the three months ended April 30,
  1998, an increase of $1.8, or 7.9%,  from $22.7 for the prior year. As a percent
  of net sales,  SE&A  expenses  were  reduced to 11.3% for the three months ended
  April 30, 1998 from 12.8% for the  comparable  period of 1997.  The  increase in
  SE&A  expense was  attributable  to the  addition  of World Wide and  Ballantrae
  offset by the  reclassification  of certain  SE&A  expenses  to cost of sales as
  noted above.
  
       Operating  Income  Operating  income was $20.3 for the three  months  ended
  April 30,  1998,  an  increase of $4.9 from $15.4 for the  comparable  period of
  1997. As a percentage of net sales,  operating  income increased to 9.3% for the
  three  months  ended  April 30, 1998 from 8.7% for the same period of last year.
  The increase in operating  income was  primarily  the result of the inclusion of
  World Wide Automotive and Ballantrae in the current period.  Operating income as
  a percent of net sales,  excluding  World Wide and  Ballantrae  was 9.1% for the
  three  months  ended  April 30, 1998  compared  to 8.7% for the prior year.  The
  increase was due to the  additional  volume and cost  improvements  as discussed
  above.
  
       Interest Expense Interest expense for the three months ended April 30, 1998
  was $9.7,  a decrease of $0.4,  or 4.0%,  compared  to $10.1 for the  comparable
  period of 1997. The reduction in interest  expense is primarily  attributable to
  the  recapitalization of the Company in December 1997. At that time, the Company
  raised  $51.3  million with an initial  public  offering of its common stock and
  used the funds to repay debt. Concurrently with the initial public offering, the
  Company  issued $145 million 8 5/8% senior notes to  refinance  higher  interest
  rate debt.
  
       Income  Taxes  Income  taxes for the three months ended April 30, 1998 were
  $4.1 and $1.9 for the same  period of 1997.  The  Company's  effective  tax rate
  varies  between 39% to 40%,  based on income levels and other factors  involving
  the states and countries in which the company does business.
  
                                         18
  <PAGE>
  
       Loss from Discontinued Operations While there was no loss from discontinued
  operations  in 1998,  the  Company  did incur  such a loss of $0.2 for the three
  months  ended  April 30,  1997  relating  to the  Company's  Powder  Metal Forge
  Business (PMF).
  
       Net Income Net income was $5.9 for the three  months  ended April 30, 1998,
  an increase of $3.6,  from the $2.3 reported for the comparable  period of 1997.
  The increase in net income was  principally the result of the inclusion of World
  Wide and  Ballantrae  partially  offset by  start-up  costs at the two new focus
  factories.
  
  Nine Months Ended April 30, 1998 Compared to Nine Months Ended April 30, 1997
  
       Net Sales Net sales were $619.4 for the nine months  ended April 30,  1998,
  an increase of $109.7,  or 21.5%,  from $509.7 for the same period of 1997.  The
  increase resulted from the inclusion of World Wide and Ballantrae's net sales of
  $63.5. The sales  improvement was attributable to the acquisitions of World Wide
  and  Ballantrae  and gains in the  Powertrain  /  Drivetrain  operations  of the
  Company's  aftermarket  business.  Additionally,  the Company experienced strong
  demand from the heavy duty OEM market and increased GM volume compared to 1997.
  
       Gross  Profit  Gross  profit was $122.1 for the nine months ended April 30,
  1998,  an increase  of $14.1,  or 13.1%,  from $108.0 for the nine months  ended
  April 30,  1997.  As a  percentage  of net sales,  gross profit was lower by 1.5
  percentage  points for the nine  months  ended April 30, 1998 from 21.2% for the
  comparable period of 1997. This change was primarily  attributable to a shift in
  aftermarket  sales  volume from higher  margin  heavy duty to lower margin light
  duty product lines,  in addition to  reclassification  of certain  expenses from
  SE&A to  overhead  and the  startup  costs  associated  with the four new  focus
  factories.
  
       Selling,  Engineering and Administrative  Expenses SE&A expenses were $66.6
  for the nine months ended April 30,  1998,  an increase of $0.8,  or 1.2%,  from
  $65.8 for the prior year.  As a percentage  of net sales,  SE&A expenses fell to
  10.8% for the nine months  ended  April 30,  1998 from 12.9% for the  comparable
  period  of  1997.  The  reduction  in  expenses  occurred  principally  from the
  reclassification  of certain expenses to cost of sales,  partially offset by the
  inclusion of World Wide and Ballantrae in the current period.
  
       Operating Income Operating income was $55.4 for the nine months ended April
  30, 1998,  an increase of $13.1,  or 31.0%,  from $42.3 for the same period last
  year. The improvement in operating income reflects the acquisition of World Wide
  and  Ballantrae  in the  current  period,  as well as the higher  volume and the
  impact of the relocation to focus factories discussed above. Operating income as
  a percentage of net sales  excluding  World Wide and Ballantrae was 8.9% for the
  nine months ended April 30, 1998,  compared to 8.3% in the comparable  period of
  1997.
  
       Interest  Expense Interest expense for the nine months ended April 30, 1998
  was $30.4,  an increase of $1.6, or 5.6%,  compared to $28.8 for the  comparable
  period of 1997. The increase was primarily due to the  additional  debt incurred
  to finance the  acquisitions of World Wide and  Ballantrae.  The additional debt
  was partially offset by the recapitalization initiatives in December, 1997.
  
       Income Taxes Income taxes for the nine months ended April 30, 1998 of $9.8,
  and $5.3 for the  comparable  period of 1997,  represent  effective tax rates of
  39.2% and 39.6%, respectively.
  
                                         19
  
  <PAGE>
  
       Non-recurring  Deemed Dividend on Preferred Stock  Conversion.  In December
  1997,  a  deemed  dividend  of a  subsidiary  arose  from  the  exchange  of the
  redeemable exchangeable preferred stock of subsidiary for the excess of the fair
  value of the 8% Subordinated Debenture over the carrying value of the redeemable
  exchangeable  preferred stock of subsidiary  resulting in a non-recurring charge
  of $1.6 for the nine month period ending April 30, 1998.
  
       Loss from Discontinued Operations While there was no loss from discontinued
  operations  in 1998,  the  Company  did  incur  such a loss of $0.5 for the same
  period of 1997. The loss relates to the Company's PMF business.
  
       Write Off of Debt Issuance Costs In December 1997, certain debt was retired
  out of the proceeds from the issuance of the senior notes and the initial public
  offering of stock.  Unamortized  issuance  costs,  net of income taxes,  of $1.8
  relating to the retired  debt was  written  off in the nine month  period  ended
  April 30,  1998.  In August  1996,  certain debt was retired out of the proceeds
  from the 10 5/8% senior subordinated notes due 2006. Unamortized issuance costs,
  net of income taxes, of $2.4 relating to the retired debt was written off in the
  nine month period ended April 30, 1997.
  
       Net Income Net income was $9.6 for the nine months ended April 30, 1998, an
  increase of $6.2,  from $3.4 for the  comparable  period of 1997.  Adjusted  net
  income  before  non-recurring  charges was $13.1 for the nine months ended April
  30, 1998 compared to $6.3 for the same period last year.
  
  Liquidity and Capital Resources
  
       The  Company's  liquidity  needs include  required  debt  service,  working
  capital needs and the funding of capital  expenditures.  The Company anticipates
  lower working  capital  requirements  from a reduction in the inventory that was
  increased to provide for the  relocation  to the focus  factories as well as the
  shut down of the Meridian, Mississippi and Anderson, Indiana OEM facilities.
  
       Interest   payments  under  the  Company's   indebtedness  will  result  in
  significant liquidity requirements for the Company.
  
       Cash interest expense for the nine months ended April 30, 1998 and the nine
  months ended April 30, 1997 was $27.1 and $22.3, respectively. Non-cash interest
  accrued  during the nine months  ended April 30, 1998 and the nine months  ended
  April 30,1997 was $3.3 and $6.5, respectively, or 10.8% and 22.5%, respectively,
  of total  interest  expense.  The Company has no  significant  requirements  for
  principal payments until the year 2006.
  
       The  Company's  capital  expenditures  were $15.0 for the nine months ended
  April 30, 1998, a reduction of $14.1 from the $29.1 reported for the same period
  last year. The Company has budgeted capital  expenditures of approximately  $9.0
  for the  remainder of fiscal year 1998.  Planned  capital  expenditures  consist
  primarily of production  equipment for the Company's new focus  factories,  cost
  reduction and quality initiatives, as well as upgrades in machinery,  technology
  and environmental compliance.
  
                                         20
  
  <PAGE>
  
       The Company's principal sources of cash to fund its liquidity needs will be
  net cash from  operating  activities  and  borrowings  under the  Senior  Credit
  Facility.  The Senior Credit Facility  provides $180.0 of revolving loans. As of
  April 30, 1998 there were $48.3 in borrowings  outstanding,  net of cash,  under
  the Senior Credit Facility.
  
       The  Company's  initial  public  offering of 4.6 million  shares of Class A
  Common Stock in December 1997 and January 1998  generated net proceeds of $51.3.
  The Company  also issued 8 5/8% Senior  Subordinated  Notes with net proceeds of
  $141.4 in December  1997.  These  proceeds were used to pay off debt with higher
  interest  rates and less  favorable  terms.  On April 30, 1998 the debt to total
  capitalization of the Company was 77.8% as compared to 92.5% on April 30, 1997.
  
       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 and working capital needs for
  the foreseeable  future,  although no assurance can be given in this regard. The
  Company's  future  operating  performance  and  ability to service,  extend,  or
  refinance its indebtedness will be subject to future economic  conditions and to
  financial, business and other factors that are beyond the Company's control.
  
  Seasonality
  
       The Company's business is moderately  seasonal,  as its major OEM customers
  historically  have one- to two-week  summer  shutdowns of operations  during the
  fourth fiscal quarter. In addition,  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 second and fourth quarter results reflect
  the effects of these shutdowns.
  
  Year 2000
  
       The  Company  has  developed  a plan to  modify  the  existing  information
  technology to recognize the year 2000 and has begun converting its critical data
  processing systems. The Company currently expect the project to be substantially
  complete by early  calendar year 1999.  The estimated cost of this plan includes
  internal  costs,  but  excludes  the cost to upgrade and replace  systems in the
  normal  course of  business.  The Company does not expect this project to have a
  material effect on operations.
  
  Effects of Inflation
  
       The Company believes that the relatively  moderate  inflation over the last
  few  years  has  not had a  significant  impact  on the  Company's  revenues  or
  profitability  and that it has been able to offset the effects of  inflation  by
  increasing  prices or by realizing  improvements  in operating  efficiency.  The
  Company  has  provisions  in many of its  contracts  which  provide for the pass
  through of  fluctuations  in the price of certain raw materials,  such as copper
  and aluminum.
  
  
  
                                         21
  <PAGE>
  
  Foreign Sales
  
       Approximately  20.0% of the  Company's net sales is derived from sales made
  to customers in foreign countries. Because of these foreign sales, the Company's
  business is subject to the risks of doing business  abroad,  including  currency
  exchange rate  fluctuations,  limits on repatriation  of funds,  compliance with
  foreign laws and other economic and political uncertainties.
  
  Forward-Looking Statements
  
       Statements  in  this  Form  10 Q,  which  are  not  historical  facts,  are
  forward-looking   statements  that  involve  certain  risks  and  uncertainties,
  including,  but not limited to risks  associated  with the uncertainty of future
  financial results, acquisitions, additional financing requirements,  development
  of new products and services, the effect of competitive products or pricing, the
  effect of economic conditions and other uncertainties  detailed in the Company's
  other filings with the Securities and Exchange Commission.
  
  
                                         22
  <PAGE>
  
                             PART II. OTHER INFORMATION
  
  
  Item 1.   Legal Proceedings.
  
            None
  
  Item 2.   Changes in Securities.
  
            None
  
  Item 3.   Defaults Upon Senior Securities.
  
            None
  
  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) Reports on Form 8-K. The Company has not filed any reports on Form
            8-K during the quarterly period ended April 30, 1998.
  
  
  
                                         23
  <PAGE>
                                     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:    June 12, 1998                      By: /s/ David L. Harbert
                                                   David L. Harbert
                                                   Executive Vice President and
                                                   Chief Financial Officer
  
  
  
  
  
  Date:    June 12, 1998                      By:  /s/ David E. Stoll
                                                    David E. Stoll
                                                    Vice President and Controller
                                                    Principal Accounting Officer
  
  
  
                                         24
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 95965}]
metadata_filer: {"company-data": {"conformed-name": "DELCO REMY INTERNATIONAL INC", "cik": "0001046859", "assigned-sic": "3714", "irs-number": "351909253", "state-of-incorporation": "DE", "fiscal-year-end": "0731"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "001-13683", "film-number": "98647000"}, "business-address": {"street1": "2902 ENTERPRISE DRIVE", "city": "ANDERSON", "state": "IN", "zip": "46013", "phone": "7657786499"}, "mail-address": {"street1": "2902 ENTERPRISE DRIVE", "city": "ANDERSON", "state": "IN", "zip": "46013"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D. C. 20549
  
                                      FORM 10-Q
  (Mark One)
  
  / X /  Quarterly  Report  Pursuant  to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934 for the Quarterly Period Ended April 30, 1998
  
                                         OR
  
  /   /  Transition  Report  Pursuant  to  Section  13 or 15(d) of the  Securities
         Exchange Act of 1934 for the Transition Period From  ____________________
         to _________________
  
  Commission File Number             1-13683 
  
                          Delco Remy International, Inc. 
               (Exact name of registrant as specified in its charter)
  
               Delaware                                 35-1909253
  --------------------------------------------------------------------------------
  (State or other jurisdiction of                    (I.R.S. Employer
  incorporation or organization)                   Identification Number)
  
   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  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 the filing  requirements for
  the past 90 days. 
  
                                 Yes _X_    No ___
  
       Indicate the number of shares  outstanding of each of the issuer's  classes
  of common stock, as of the latest practicable date:
  
                                           Number of common shares outstanding
               Class                              as of May 29, 1998
       Common Stock - Class A                         16,712,839
       Common Stock - Class B                          7,733,674
  
                                          1
  PART I. FINANCIAL INFORMATION
  
                                FINANCIAL STATEMENTS
  
                   Condensed Consolidated Statements of Operations
                   Delco Remy International, Inc. and Subsidiaries
                                      Unaudited
  -----------------------------------------------------
                                                                               Three Month Period           Nine Month Period
                                                                                 Ended April 30               Ended April 30
                                                                            -----------------------------------------------------
                                                                               1998          1997           1998          1997
                                                                            =====================================================
                (in thousands of dollars, except per share amounts )
  Net sales                                                                 $ 217,083     $ 177,727      $ 619,362      $ 509,717
  Cost of goods sold                                                          172,349       139,639        497,287        401,681
                                                                            ---------     ---------      ---------      ---------
  Gross profit                                                                 44,734        38,088        122,075        108,036
  Selling, engineering, and administrative expenses                            24,461        22,713         66,627         65,782
                                                                            ---------     ---------      ---------      ---------
  Operating income                                                             20,273        15,375         55,448         42,254
  Interest expense                                                              9,748        10,124         30,398         28,839
                                                                            ---------     ---------      ---------      ---------
  
  Income from continuing operations before minority interest,
       income taxes, deemed dividend on preferred stock conversion,
       and preferred dividend requirements of subsidiary                       10,525         5,251         25,050         13,415
  Minority interest in income of subsidiaries                                     524           383          1,545            628
  Income taxes                                                                  4,074         1,917          9,769          5,264
  Deemed dividend on preferred stock conversion                                    --            --          1,639             --
  Preferred dividend requirement of subsidiary                                     --           410            645          1,236
                                                                            ---------     ---------      ---------      ---------
  Income from continuing operations                                             5,927         2,541         11,452          6,287
  Discontinued operations:
       Loss from operations of discontinued businesses
       (net of  applicable tax benefit)                                            --           194             --            520
                                                                            ---------     ---------      ---------      ---------
  Income before extraordinary items                                             5,927         2,347         11,452          5,767
  
  Extraordinary item:
       Write-off of debt issuance costs (net of applicable tax benefit)            --            --          1,803          2,351
                                                                            ---------     ---------      ---------      ---------
  Net  income                                                               $   5,927     $   2,347      $   9,649      $   3,416
                                                                            =========     =========      =========      =========
  
  Basic Earnings Per Common Share:
       Income from continuing operations                                    $    0.25     $    0.18      $    0.70      $    0.44
       Discontinued operations                                                     --         (0.01)            --          (0.04)
       Extraordinary items                                                         --            --          (0.11)         (0.16)
                                                                            ---------     ---------      ---------      ---------
       Net income                                                           $    0.25     $    0.16      $    0.59      $    0.24
                                                                            =========     =========      =========      =========
  
  Diluted Earnings Per Common Share:
       Income from continuing operations                                    $    0.23     $    0.15      $    0.61      $    0.37
       Discontinued operations                                                     --         (0.01)            --          (0.03)
       Extraordinary items                                                         --            --          (0.10)         (0.14)
                                                                            ---------     ---------      ---------      ---------
       Net income                                                           $    0.23     $    0.14      $    0.51      $    0.20
                                                                            =========     =========      =========      =========
  See notes to condensed consolidated financial statements
  
                                         2
  Condensed Consolidated Balance Sheets
                   Delco Remy International, Inc. and Subsidiaries
                                      Unaudited
  -------------------------
                                                                     April 30,      July 31,
                                                                       1998           1997
                                                                   =========================
                                                                   (in thousands of dollars)
  ASSETS
  
  Current assets:
       Cash and cash equivalents                                    $   9,127      $  10,050
       Trade accounts receivable, net                                 144,933        110,184
       Other receivables                                                8,227         13,376
       Inventories                                                    195,654        164,417
       Deferred income taxes                                           21,246         21,474
       Other current assets                                             7,053          4,643
                                                                    ---------      ---------
                 Total current assets                                 386,240        324,144
  
  Property and equipment                                              198,020        147,222
  Less accumulated depreciation                                        53,357         26,858
                                                                    ---------      ---------
                                                                      144,663        120,364
  
  Deferred financing costs                                             11,637          8,803
  Goodwill (less accumulated amortization)                            110,086         86,612
  Net assets held for disposal                                         23,521         25,279
  Investment in affiliates                                             11,160          3,119
  Other assets                                                          7,893          2,248
                                                                    ---------      ---------
                 Total assets                                       $ 695,200      $ 570,569
                                                                    =========      =========
  
              LIABILITIES AND STOCKHOLDERS' EQUITY
  
  Current liabilities:
       Account payable                                              $  93,924      $  88,578
       Accrued restructuring charges                                   26,498         37,377
       Liabilities related to discontinued operations                   1,909          3,324
       Other liabilities and accrued expenses                          52,794         40,317
       Current portion of long-term debt                                  595            507
                                                                    ---------      ---------
                   Total current liabilities                          175,720        170,103
  
  Long-term debt                                                      378,462        363,261
  Other noncurrent liabilities                                         33,033         22,899
  Minority interest in subsidiaries                                     9,299          8,032
  Redeemable exchangeable preferred stock of subsidiary                    --         16,071
  Stockholders' equity:
       Common Stock:
            Class A shares                                                167             88
            Class B shares                                                 77             65
       Paid-in capital                                                106,216          6,677
       Retained earnings (deficit)                                     (2,525)       (12,174)
       Cumulative translation adjustment                               (2,949)        (1,752)
       Stock purchase plan                                             (2,300)        (2,701)
                                                                    ---------      ---------
  
                     Total stockholders' equity                        98,686         (9,797)
                                                                    ---------      ---------
  
                     Total liabilities and stockholders' equity     $ 695,200      $ 570,569
                                                                    =========      =========
  See notes to condensed consolidated financial statements
  
                                         3
  Condensed Consolidated Statements of Cash Flows
                   Delco Remy International, Inc. and Subsidiaries
                                      Unaudited
  -------------------------
                                                                                        Nine Month Period
                                                                                          Ended April 30
                                                                                    -------------------------
                                                                                       1998           1997
                                                                                    =========================
                                                                                    (in thousands of dollars)
  Operating activities:
  Net income                                                                        $   9,649      $   3,416
  Extraordinary items                                                                   1,803          2,351
  Adjustments to reconcile net income to net cash used in operating activities:
       Depreciation and amortization                                                   12,355         15,810
       Deferred income taxes                                                            1,379           (410)
       Non-cash interest expense                                                        2,024          4,101
       Minority interest in subsidiaries                                                1,545            628
       Preferred dividend requirement of subsidiary                                       645          1,236
       Deemed dividend on preferred stock conversion                                    1,639             --
       Changes in operating assets and liabilities, net of acquisitions:
          Accounts receivable                                                         (28,962)       (30,594)
          Inventories                                                                 (17,078)        (2,986)
          Accounts payable                                                              2,518        (10,747)
          Other current assets and liabilities                                          9,791         (2,131)
          Accrued restructuring charges                                               (10,879)          (907)
          Other non-current assets and liabilities, net                                 6,396         18,713
                                                                                    ---------      ---------
  
  Net cash used in operating activities                                                (7,175)        (1,520)
  
  Investing activities:
  Acquisitions, net of cash acquired                                                  (59,581)            --
  Purchase of property and equipment                                                  (15,039)       (29,065)
  Investment in affiliates                                                             (4,326)            --
                                                                                    ---------      ---------
  
  Net cash used in investing activities                                               (78,946)       (29,065)
  
  Financing activities:
  Proceeds from issuances of long-term debt                                           145,000        140,000
  Payments on long-term debt                                                         (153,500)      (112,669)
  Initial public offering of common stock                                              71,944             --
  Other financing activities                                                           22,951          3,258
                                                                                    ---------      ---------
  
  Net cash provided by financing activities                                            86,395         30,589
  
  Effect of exchange rate changes on cash                                              (1,197)            86
                                                                                    ---------      ---------
  
  Net increase (decrease) in cash and cash equivalents                                   (923)            90
  Cash and cash equivalents at beginning of period                                     10,050          3,406
                                                                                    ---------      ---------
  
  Cash and cash equivalents at end of period                                        $   9,127      $   3,496
                                                                                    =========      =========
  See notes to condensed consolidated financial statements
  
                                         4
  DELCO REMY INTERNATIONAL, INC.
  
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
                                     (Unaudited)
                              (in thousands of dollars)
  
  1.   Basis of Presentation
  
  The accompanying unaudited condensed consolidated financial statements have been
  prepared in accordance with generally accepted accounting principles for interim
  financial  information and with the  instructions to Form 10-Q and Article 10 of
  Regulation  S-X.  Accordingly,  they do not include all of the  information  and
  footnotes  required by generally  accepted  accounting  principles  for complete
  financial statements. In the opinion of management,  all adjustments (consisting
  of normal recurring accruals)  considered necessary for a fair presentation have
  been included.  Operating  results for the three- and  nine-month  periods ended
  April  30,  1998  are not  necessarily  indicative  of the  results  that may be
  expected for the full fiscal year.  The balance  sheet at July 31, 1997 has been
  derived from the audited financial  statements at that date but does not include
  all of the information and footnotes required by generally  accepted  accounting
  principles for complete financial statements. For further information,  refer to
  the consolidated  financial  statements and footnotes thereto for the year ended
  July 31, 1997.
  
  2.   Inventories
  
  Inventories consist of the following:
  
            -----------------------------------------
                                April 30,    July 31,
                                  1998         1997
            -----------------------------------------
            Raw material        $ 85,503     $ 84,583
            Work-in-process       35,073       20,168
            Finished goods        75,078       59,666
                                --------     --------
            Total               $195,654     $164,417
            =========================================
  
  3.   Offerings
  
  On December  22, 1997,  the Company  issued  4,000,000  shares of Class A Common
  Stock in an initial  public  offering at $12.00 per share.  Also, on January 16,
  1998, the Company issued an additional 600,000 shares of Class A Common Stock at
  $12.00  per  share  as  a  result  of  the   underwriters'   exercise  of  their
  over-allotment  option.  In addition,  on December 22, 1997,  the Company issued
  $145,000  of Senior  Notes Due 2007 (the  Senior  Notes).  Net  proceeds  to the
  Company from such  Offerings,  after  deduction  of  associated  expenses,  were
  approximately $192,700.
  
  On January 29, 1998, the Company consummated the exchange of its unregistered 10
  5/8% Senior  Subordinated  Notes Due 2006 with  registered  debt having the same
  terms. There was no cash impact from this exchange.
  
                                          5
  4.   Acquisitions
  
  On  December  22,  1997,  the  Company  acquired  all of the  capital  stock  of
  Ballantrae  Corporation  ("Ballantrae")  for $53,900,  including assumed debt, a
  working capital  adjustment and fees and expenses.  Ballantrae  operates through
  two subsidiaries:  Tractech,  a leading producer of traction control systems for
  heavy duty original equipment  manufacturers and the aftermarket;  and Kraftube,
  Inc.,  a  tubing   assembly   business   which  sells   products  to  compressor
  manufacturers for commercial air conditioners and refrigeration  equipment.  The
  Company  exchanged  shares of its  common  stock  with a value of  approximately
  $23,000  for the  equity of  Ballantrae  and  repaid  approximately  $30,000  of
  Ballantrae's  debt.  The  acquisition  was treated as a purchase for  accounting
  purposes and resulted in goodwill of $24,495  which is being  amortized  over 35
  years.
  
  The unaudited pro forma  consolidated  results of operations for the nine months
  ended April 30, 1998 and 1997,  assuming the acquisition had been consummated on
  the first day of each such period, are as follows:
  
  --------------------------------------------------------------------------------
                                             Nine Months Ended   Nine Months Ended
                                               April 30, 1998     April 30, 1997
  --------------------------------------------------------------------------------
           Revenues                                $634,216          $587,700
           Income from continuing operations         14,810            12,894
           Net income                                13,007            10,023
  --------------------------------------------------------------------------------
  
  The pro forma  consolidated  financial  information  does not purport to present
  what the Company's  consolidated  results of operations would actually have been
  if the acquisition had occurred on the first day of the periods presented and is
  not intended to project future results of operations.
  
  On March 5,  1998,  the  Company  acquired  Atlantic  Reman  Limited  which is a
  Canadian Ford Authorized Remanufacturer for the Maritime Provinces in Canada. It
  remanufactures and distributes engines, starters, alternators and water pumps to
  Ford dealers as well as General Motors and Chrysler dealers in Canada. Pro forma
  consolidated  results are not presented for this acquisition  because the effect
  on the Company is not material.
  
  The Company also acquired the starter and alternator  operations of Lucas Varity
  in March,  1998. Located in England,  the Lucas line of remanufactured  starters
  and alternators is the market leader in the U.K.  independent  aftermarket.  Pro
  forma  consolidated  results are not presented for this acquisition  because the
  effect on the Company is not material.
  
  In  addition,  in March,  1998,  the Company  acquired 37% of Sahney Paris Rohne
  Ltd., an Indian remanufacturer of starters and alternators who sells principally
  to the Indian market. Pro forma consolidated  results are not presented for this
  acquisition because the effect on the Company is not material.
  
  5.   Recapitalization
  
  In  connection  with  the  above-mentioned  offerings  and  the  acquisition  of
  Ballantrae,  the Company completed  several related  transactions to restructure
  its  outstanding  debt and preferred stock (the  Recapitalization).  Significant
  components  of the  Recapitalization,  together with the  applicable  accounting
  effects were as follows:
  
                                          6
  o    The payment of the World Note: The early  extinguishment  of the World
            Note resulted in a write-off of the unamortized debt issuance costs of
            $1,803,   net  of  income  taxes,   which  was  accounted  for  as  an
            extraordinary loss.
       o    The payment in full of the GM Acquisition Note.
       o    The exchange of the Junior  Subordinated Notes for 2,358,490 shares of
            Class A Common Stock.
       o    The conversion of the  outstanding  shares of 8% preferred  stock of a
            subsidiary  into an 8%  subordinated  debenture of a subsidiary.  This
            transaction  resulted in deemed dividend on preferred stock conversion
            of $1,639 as shown on the face of the Condensed Consolidated Statement
            of Operations.
       o    The payment in full of $11,800 principal amount of subordinated  notes
            payable to certain former stockholders of acquired subsidiaries.
       o    The  amendment of the senior credit  facility in  connection  with the
            consummation of the Offerings.
       o    Payment of certain of the Ballantrae debt assumed in the Acquisition.
  
  6.   Share and Per Share Information
  
  On December 17, 1997,  the Company  authorized a  16.8-to-one  stock split which
  occurred  on  December  19,  1997.  All share and per  share  amounts  have been
  adjusted to reflect  this split.  The basic and diluted  earnings  per share are
  determined using the numerator and denominator calculated as follows:
  ------------------------------------------------------------------------------------------------------------------
                                                                         Three-Month Period     Nine-Month Period
                                                                           Ended April 30,       Ended April 30,
  -----------------------------------------------------------------------------------------------------------------
                                                                          1998       1997        1998         1997
                                                                        -------------------------------------------
  Numerator:
  Income from continuing operations                                     $ 5,927     $ 2,541     $11,452     $ 6,287
  Loss from operations of discontinued businesses                            --         194          --         520
  Extraordinary items                                                        --          --       1,803       2,351
                                                                        -------------------------------------------
  Numerator for basic and diluted earnings per share                    $ 5,927     $ 2,347     $ 9,649     $ 3,416
  
  Denominator:
  Denominator for basic earnings per share (weighted                     23,463      14,279      16,339      14,273
  average shares)
  Effect of dilutive securities:
      Warrants                                                            1,680       1,680       1,680       1,680
      Employee stock options                                                 62          --          24          --
      Stock purchase plan                                                   840       1,004         831         944
                                                                        -------------------------------------------
  Denominator for diluted earnings per share
    (weighted average shares and assumed conversions)                    26,045      16,963      18,874      16,897
  =================================================================================================================
  7
  7.   Financial Information for Subsidiary Guarantors and Non-Guarantor
       Subsidiaries
  
  The Company conducts a significant portion of its business through subsidiaries.
  The Senior Notes and the Senior Subordinated Notes are fully and unconditionally
  guaranteed,  jointly and severally,  by certain direct and indirect subsidiaries
  (the Subsidiary Guarantors). The Company owns directly or indirectly 100% of the
  voting securities of each of the Subsidiary Guarantors. Certain of the Company's
  subsidiaries do not guarantee the Senior Notes or the Senior  Subordinated Notes
  (the  Non-Guarantor  Subsidiaries).  The claims of  creditors  of  Non-Guarantor
  Subsidiaries  have priority over the rights of the Company to receive  dividends
  or distributions from such subsidiaries.
  
  Presented  below  is  condensed  consolidating  financial  information  for  the
  Company, the Subsidiary  Guarantors and the Non-Guarantor  Subsidiaries at April
  30, 1998 and July 31, 1997 and for the three- and nine-month periods ended April
  30, 1998 and 1997.
  
  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 each of the  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.              Autovill RT Ltd.
  Remy International, Inc.              Power Investments Canada Ltd.
  Reman Holdings, Inc.                  Remy UK Limited
  Nabco, Inc.                           Delco Remy International (Europe) GmbH
  The A & B Group, Inc.                 Remy India Holdings, Inc.
  A & B Enterprises, Inc.               Remy Korea Holdings, Inc.
  Dalex, Inc.                           681287 Alberta Ltd.
  A & B Cores, Inc.                     World Wide Automotive Distributors, Inc.
  R & L Tool Company, Inc.              Autovill Holdings, Inc.
  MCA, Inc. of Mississippi              Tractech (Ireland) Ltd.
  Power Investments, Inc.               Kraftube, Inc.
  Franklin Power Products, Inc.         Delco Remy U.K. Ltd.
  International Fuel Systems, Inc.      Central Precision - Atlantic Reman Limited
  Marine Drive Systems, Inc.
  Marine Corporation of America
  Powrbilt Products, Inc.
  World Wide Automotive, Inc.
  Ballantrae Corporation
  Tractech Inc.
  --------------------------------------------------------------------------------
  
                                          8
  Delco Remy International, Inc.
                   Condensed Consolidated Statement of Operations
                      For the Three Months Ended April 30, 1998
                              (in thousands of dollars)
  Delco Remy
                                                         International,
                                                              Inc.                         Non-
                                                            (Parent      Subsidiary     Guarantor
                                                         Company Only)   Guarantors    Subsidiaries      Eliminations    Consolidated
                                                         -----------------------------------------------------------------------------
  Net sales                                               $     --        $220,557       $ 40,372        $(43,846)(a)       $217,083
  Cost of goods sold                                            --         182,453         33,742         (43,846)(a)        172,349
                                                         -----------------------------------------------------------------------------
  
  Gross profit                                                  --          38,104          6,630              --             44,734
  
  Selling, engineering, and administrative expenses           (706)         22,008          3,159              --             24,461
                                                         -----------------------------------------------------------------------------
  Operating income                                             706          16,096          3,471              --             20,273
  Interest expense (income)                                  7,154           2,625            (31)             --              9,748
                                                         -----------------------------------------------------------------------------
  
  Income (loss) from continuing operations
     before income taxes, preferred dividend
     requirements of subsidiary, minority
     interest and deemed dividend on preferred
     stock conversion                                       (6,448)         13,471          3,502              --             10,525
  Minority interest in income of subsidiaries                   --             446             78              --                524
  Equity in earnings of subsidiaries                         9,285              --             --          (9,285)(b)             --
  Income tax expense (benefit)                              (3,090)          6,071          1,093              --              4,074
                                                         -----------------------------------------------------------------------------
  Income from continuing operations                          5,927           6,954          2,331          (9,285)             5,927
                                                         -----------------------------------------------------------------------------
  
  Net income                                              $  5,927        $  6,954       $  2,331        $ (9,285)          $  5,927
                                                         =============================================================================
  ------------------------------
  (a)  Elimination of intercompany sales and cost of sales.
  (b)  Elimination of equity in net income from consolidated subsidiaries.
  9
  Delco Remy International, Inc.
                   Condensed Consolidated Statement of Operations
                      For the Nine Months Ended April 30, 1998
                              (in thousands of dollars)
  Delco Remy
                                                       International,
                                                             Inc.                             Non-
                                                           (Parent         Subsidiary      Guarantor
                                                        Company Only)      Guarantors     Subsidiaries     Eliminations   Consolidated
                                                      --------------------------------------------------------------------------------
  Net sales                                               $      --        $ 633,797       $  94,312       $(108,747)(a)    $ 619,362
  Cost of goods sold                                             --          526,630          79,404        (108,747)(a)      497,287
                                                      --------------------------------------------------------------------------------
  
  Gross profit                                                   --          107,167          14,908              --          122,075
  
  Selling, engineering, and administrative expenses             807           57,943           7,877              --           66,627
                                                      --------------------------------------------------------------------------------
  Operating income (loss)                                      (807)          49,224           7,031              --           55,448
  Interest expense (income)                                  17,722           12,617              59              --           30,398
                                                      --------------------------------------------------------------------------------
  
  Income (loss) from continuing operations before
     income taxes, preferred dividend
     requirements of subsidiary, minority
     interest and deemed dividend on preferred
     stock conversion                                       (18,529)          36,607           6,972              --           25,050
  Minority interest in income of subsidiaries                    --            1,390             155              --            1,545
  Equity in earnings of subsidiaries                         20,350               --              --         (20,350)(b)           --
   Income tax expense (benefit)                              (7,828)          15,143           2,454              --            9,769
  Deemed dividend on preferred stock conversion                  --               --              --           1,639 (c)        1,639
  Preferred dividend requirement of subsidiary                   --               --              --             645 (c)          645
                                                      --------------------------------------------------------------------------------
  
  Income from continuing operations                           9,649           20,074           4,363         (22,634)          11,452
  
  Extraordinary item:
     Write-off of debt issuance costs
     (net of applicable income tax benefit)                      --            1,803              --              --            1,803
                                                      ================================================================================
  
  Net income                                              $   9,649        $  18,271       $   4,363       $ (22,634)       $   9,649
                                                      ================================================================================
  ----------------------
  (a)  Elimination of intercompany sales and cost of sales.
  (b)  Elimination of equity in net income from consolidated subsidiaries.
  (c)  Recording  of  preferred  dividend  requirement  of  subsidiary  and deemed
       dividend on preferred stock conversion.
  10
  Delco Remy International, Inc.
                   Condensed Consolidated Statement of Operations
                      For the Three Months Ended April 30, 1997
                              (in thousands of dollars)
  Delco Remy
                                                         International,
                                                              Inc.                          Non-
                                                            (Parent        Subsidiary    Guarantor
                                                         Company Only)     Guarantors   Subsidiaries     Eliminations   Consolidated
                                                        ------------------------------------------------------------------------------
  Net sales                                                $     --        $182,398       $ 15,989        $(20,660)(a)    $177,727
  Cost of goods sold                                             --         146,594         13,705         (20,660)(a)     139,639
                                                        ------------------------------------------------------------------------------
  
  Gross profit                                                   --          35,804          2,284              --          38,088
  
  Selling, engineering, and administrative expenses           1,081          18,867          2,765              --          22,713
                                                        ------------------------------------------------------------------------------
  Operating income (loss)                                    (1,081)         16,937           (481)             --          15,375
  Interest expense                                            4,705           5,309            110              --          10,124
                                                        ------------------------------------------------------------------------------
  
  Income (loss) from continuing operations
     before income taxes, preferred dividend
     requirements of subsidiary, minority interest           (5,786)         11,628           (591)             --           5,251
  Minority interest in income (loss) of subsidiaries             --             410            (27)             --             383
  Equity in earnings of subsidiaries                          5,554              --             --          (5,554)(b)          --
  Income tax expense (benefit)                               (2,587)          4,428             76              --           1,917
  Preferred dividend requirement of subsidiary                   --              --             --             410 (c)         410
                                                        ------------------------------------------------------------------------------
  
  Income (loss) from continuing operations                    2,355           6,790           (640)         (5,964)          2,541
  
  Discontinued operations:
     Loss from operations of discontinued businesses
     (net of applicable income tax benefit)                       8             186             --              --             194
                                                        ------------------------------------------------------------------------------
  
  Net income (loss)                                        $  2,347        $  6,604       $   (640)       $ (5,964)       $  2,347
                                                        ==============================================================================
  --------------------------------
  (a)  Elimination of intercompany sales and cost of sales.
  (b)  Elimination of equity in net income (loss) from consolidated subsidiaries.
  (c)  Recording of preferred dividend requirement of subsidiary.
  11
  Delco Remy International, Inc.
                   Condensed Consolidated Statement of Operations
                      For the Nine Months Ended April 30, 1997
                              (in thousands of dollars)
  Delco Remy
                                                         International,
                                                              Inc.                       Non-
                                                            (Parent      Subsidiary   Guarantor
                                                         Company Only)   Guarantors  Subsidiaries  Eliminations    Consolidated
                                                         ----------------------------------------------------------------------
  Net sales                                               $     --       $522,751      $ 45,089       $(58,123)(a)   $509,717
  Cost of goods sold                                            --        423,615        36,189        (58,123)(a)    401,681
                                                         ----------------------------------------------------------------------
  
  Gross profit                                                  --         99,136         8,900             --        108,036
  
  Selling, engineering, and administrative expenses          2,556         55,796         7,430             --         65,782
                                                         ----------------------------------------------------------------------
  Operating income (loss)                                   (2,556)        43,340         1,470             --         42,254
  Interest expense                                          14,093         14,563           183             --         28,839
                                                         ----------------------------------------------------------------------
  
  Income (loss) from continuing operations before
    income taxes, preferred dividend
    requirements of subsidiary, minority
    interest and deemed dividend on preferred
    stock conversion                                       (16,649)        28,777         1,287             --         13,415
  Minority interest in income (loss) of subsidiaries            --            655           (27)            --            628
  Equity in earnings of subsidiaries                        13,753             --            --        (13,753)(b)         --
  Income tax expense (benefit)                              (6,564)        11,158           670             --          5,264
  Preferred dividend requirement of subsidiary                  --             --            --          1,236 (c)      1,236
                                                         ----------------------------------------------------------------------
  
  Income from continuing operations                          3,668         16,964           644        (14,989)         6,287
  
  Discontinued operations:
    Loss from operations of discontinued businesses
    (net of applicable income tax benefit)                      --            520             --            --            520
  Extraordinary item:
    Write-off of debt issuance costs
    (net of applicable income tax benefit)                     252          2,099            --             --          2,351
                                                         ----------------------------------------------------------------------
  
  Net income                                              $  3,416       $ 14,345      $    644       $(14,989)      $  3,416
                                                         ----------------------------------------------------------------------
  --------------------
  (a)  Elimination of intercompany sales and cost of sales.
  (b)  Elimination of equity in net income from consolidated subsidiaries.
  (c)  Recording of preferred dividend requirement of subsidiary.
  12
  Delco Remy International, Inc.
                       Condensed Consolidating Balance Sheet
                                   April 30, 1998
                             (in thousands of dollars)
  Delco Remy
                                                         International,
                                                              Inc.                           Non-
                                                            (Parent       Subsidiary      Guarantor
                                                          Company Only)   Guarantors     Subsidiaries     Eliminations    Consolidated
                                                        ------------------------------------------------------------------------------
  Assets:
  Current assets:
       Cash and cash equivalents                           $      --       $     177       $   8,950       $      --        $   9,127
       Trade accounts receivable, net                             --         127,770          17,163              --          144,933
       Affiliate accounts receivable                         114,524          46,996           7,349        (168,869)(a)           --
       Other receivables                                          --           3,921           4,306              --            8,227
       Inventories                                                --         164,000          31,654              --          195,654
       Deferred income taxes                                   4,838          16,260             148              --           21,246
       Other current assets                                       --           6,526             527              --            7,053
                                                        ------------------------------------------------------------------------------
           Total current assets                              119,362         365,650          70,097        (168,869)         386,240
  Property and equipment                                          20         167,505          30,495              --          198,020
  Less accumulated depreciation                                  (13)        (50,645)         (2,699)             --          (53,357)
                                                        ------------------------------------------------------------------------------
                                                                   7         116,860          27,796              --          144,663
  Deferred financing costs, net                                9,592           1,523             522              --           11,637
  Goodwill, net                                                   --          93,121          16,965              --          110,086
  Net assets held for disposal                                    --          23,521              --              --           23,521
  Investment in affiliates                                   256,190              --              --        (245,030)(b)(c)    11,160
  Other assets                                                 9,912          (3,164)          1,145                            7,893
                                                        ------------------------------------------------------------------------------
           Total assets                                    $ 395,063       $ 597,511       $ 116,525       $(413,899)       $ 695,200
                                                        ==============================================================================
  
  Liabilities and shareholders' equity:
  Current liabilities:
       Accounts payable                                    $     130       $  81,435       $  12,359       $      --        $  93,924
       Affiliate accounts payable                                 --         149,734          19,135        (168,869)(a)           --
       Accrued restructuring charges                              --          26,498              --              --           26,498
       Liabilities related to discontinued operations             --           1,909              --              --            1,909
       Other liabilities and accrued expenses                 (6,708)         49,817           9,685              --           52,794
       Current portion of long-term debt                          --             595              --              --              595
                                                        ------------------------------------------------------------------------------
           Total current liabilities                          (6,578)        309,988          41,179        (168,869)         175,720
  Long-term debt, less current portion                       285,000          92,814             648              --          378,462
  Other non-current liabilities                               15,007          18,026              --              --           33,033
  Minority interest in subsidiaries                               --           7,858           1,441              --            9,299
  Shareholders' equity:
       Common stock:
           Class A shares                                        167              --              --              --              167
           Class B shares                                         77              --              --              --               77
       Paid-in capital                                       106,216              --              --              --          106,216
       Subsidiary investments                                     --         154,625          66,504        (221,129)(b)           --
       Retained earnings (deficit)                            (2,526)         14,200           9,702         (23,901)(c)       (2,525)
       Cumulative translation adjustment                          --              --          (2,949)             --           (2,949)
       Stock purchase plan                                    (2,300)             --              --              --           (2,300)
                                                        ------------------------------------------------------------------------------
           Total shareholders' equity                        101,634         168,825          73,257        (245,030)          98,686
                                                        ------------------------------------------------------------------------------
           Total liabilities and shareholders' equity      $ 395,063       $ 597,511       $ 116,525       $(413,899)       $ 695,200
                                                        ==============================================================================
  -----------------------------------------------
  (a)  Eliminations of intercompany receivables and payables.
  (b)  Elimination of investments in subsidiaries.
  (c)  Elimination of investments in subsidiaries' earnings.
  13
  Delco Remy International, Inc.
                        Condensed Consolidating Balance Sheet
                                    July 31, 1997
                              (in thousands of dollars)
  Delco Remy
                                                         International,
                                                              Inc.                          Non-
                                                            (Parent      Subsidiary      Guarantor
                                                         Company Only)   Guarantors     Subsidiaries      Eliminations   Consolidated
                                                       -------------------------------------------------------------------------------
  Assets:
  Current assets:
       Cash and cash equivalents                          $      --       $   1,504       $   8,546       $      --         $  10,050
       Trade accounts receivable                                 --          99,745          10,439              --           110,184
       Affiliate accounts receivable, net                        --          33,409               2         (33,411)(a)            --
       Other receivables                                         --          12,494             882              --            13,376
       Inventories                                               --         145,035          19,382              --           164,417
       Deferred income taxes                                  4,315          17,159              --              --            21,474
       Other current assets                                      --           4,163             480              --             4,643
                                                       -------------------------------------------------------------------------------
            Total current assets                              4,315         313,509          39,731         (33,411)          324,144
  Property and equipment                                         20         133,769          13,433              --           147,222
  Less accumulated depreciation                                 (13)        (22,353)         (4,492)             --           (26,858)
                                                       -------------------------------------------------------------------------------
                                                                  7         111,416           8,941              --           120,364
  Deferred financing costs                                    5,148           3,655              --              --             8,803
  Goodwill, net                                                  --          76,437          10,175              --            86,612
  Net assets held for disposal                                   --          25,279              --              --            25,279
  Investment in affiliates                                  171,614              --              --        (168,495)(b)(c)      3,119
  Other assets                                                1,953          (1,463)          1,758              --             2,248
                                                       -------------------------------------------------------------------------------
            Total assets                                  $ 183,037       $ 528,833       $  60,605       $(201,906)        $ 570,569
                                                       ===============================================================================
  
  Liabilities and shareholders' equity:
  Current Liabilities:
       Accounts payable                                   $     195       $  82,585       $   5,798       $      --         $  88,578
       Affiliate accounts payable                            15,684           6,152          11,575         (33,411)(a)            --
       Accrued restructuring charges                             --          37,377              --              --            37,377
       Liabilities related to discontinued operations            --           3,324              --              --             3,324
       Other liabilities and accrued expenses                (9,815)         44,141           5,991              --            40,317
       Current portion of long-term debt                         --             506               1              --               507
                                                       -------------------------------------------------------------------------------
            Total current liabilities                         6,064         174,085          23,365         (33,411)          170,103
  Long-term debt, less current portion                      173,511         189,669              81              --           363,261
  Other non-current liabilities                              11,507          11,336              56              --            22,899
  Redeemable convertible preferred stock                         --          16,071              --              --            16,071
  Minority interest in subsidiaries                              --           6,504           1,528              --             8,032
  Shareholders' equity (deficit):
       Common stock:
            Class A shares                                       88              --              --              --                88
            Class B shares                                       65              --              --              --                65
       Paid-in capital                                        6,677              --              --              --             6,677
       Subsidiary investments                                    --         127,665          31,970        (159,635)(b)            --
       Retained earnings (deficit)                          (12,174)          3,503           5,357          (8,860)(c)       (12,174)
       Cumulative translation adjustment                         --              --          (1,752)             --            (1,752)
       Stock purchase plan                                   (2,701)             --              --              --            (2,701)
                                                       -------------------------------------------------------------------------------
            Total shareholders' equity (deficit)             (8,045)        131,168          35,575        (168,495)           (9,797)
                                                       -------------------------------------------------------------------------------
            Total liabilities and shareholders' equity    $ 183,037       $ 528,833       $  60,605       $(201,906)        $ 570,569
                                                       ===============================================================================
  ----------------------------
  (a)  Eliminations of intercompany receivables and payables.
  (b)  Elimination of investments in subsidiaries.
  (c)  Elimination of investments in subsidiaries' earnings.
  14
  Delco Remy International, Inc.
                   Condensed Consolidating Statement of Cash Flows
                      For the Nine Months Ended April 30, 1998
                              (in thousands of dollars)
  Delco Remy
                                                          International,
                                                                Inc.                         Non-
                                                              (Parent     Subsidiary      Guarantor
                                                           Company Only)  Guarantors     Subsidiaries   Eliminations   Consolidated
                                                          --------------------------------------------------------------------------
  Operating Activities:
  Net income                                                $   9,649      $  18,271      $   4,363      $ (22,634)     $   9,649
  Extraordinary item                                               --          1,803             --             --          1,803
  Adjustments to reconcile  net income to net
       cash provided by (used in) operating activities:
            Depreciation and amortization                          --         11,248          1,107             --         12,355
            Equity in earnings of subsidiaries                (20,350)            --             --         20,350 (a)         --
            Deferred income taxes                              (4,990)         7,457         (1,088)            --          1,379
            Non-cash interest expense                           1,705            319             --             --          2,024
            Minority interest in subsidiaries                      --          1,390            155             --          1,545
            Preferred dividend requirement of
              subsidiary                                           --             --             --            645 (b)        645
            Deemed dividend on preferred
              stock conversion                                     --             --             --          1,639 (b)      1,639
            Changes in operating assets and
              liabilities, net of acquisitions:
               Accounts receivable                                 --        (24,711)        (4,251)            --        (28,962)
               Inventories                                         --        (12,230)        (4,848)            --        (17,078)
               Accounts payable                                   (65)        (2,721)         5,304             --          2,518
               Intercompany accounts                         (130,208)       123,666          6,542             --             --
               Other current assets and liabilities             3,082          3,944          2,765             --          9,791
               Accrued restructuring                               --        (10,879)            --             --        (10,879)
               Other non-current assets and
                 liabilities, net                              (4,924)        11,992           (672)            --          6,396
                                                          --------------------------------------------------------------------------
  Net cash (used in) provided by operating activities        (146,101)       129,549          9,377             --         (7,175)
  
  Investing activities:
  Acquisitions, net of cash acquired                          (58,217)            --         (1,364)            --        (59,581)
  Purchase of property and equipment                               --         (8,641)        (6,398)            --        (15,039)
  Investments in affiliates                                    (4,326)            --             --             --         (4,326)
                                                          --------------------------------------------------------------------------
  Net cash used in investing activities                       (62,543)        (8,641)        (7,762)            --        (78,946)
  
  Financing activities:
  
  Proceeds from issurance of long term debt                   145,000             --             --             --        145,000
  Payments on long-term debt                                   (8,300)      (145,186)           (14)            --       (153,500)
  Proceeds from initial public offering                        71,944             --             --             --         71,944
  Other financing activities                                       --         22,951             --             --         22,951
                                                          --------------------------------------------------------------------------
  Net cash provided by (used in) financing activities         208,644       (122,235)           (14)            --         86,395
  
  Effect of exhange rate changes on cash                           --             --         (1,197)            --         (1,197)
                                                          --------------------------------------------------------------------------
  Net increase (decrease) in cash and cash equivalents             --         (1,327)           404             --           (923)
  
  Cash and cash equivalents at beginning of period                 --          1,504          8,546             --         10,050
                                                          --------------------------------------------------------------------------
  Cash and cash equivalents at end of period                $      --      $     177      $   8,950      $      --      $   9,127
                                                          ==========================================================================
  ----------------------------------
  (a)  Elimination of equity in earnings of subsidiary.
  (b)  Recording  of  preferred  dividend  requirement  of  subsidiary  and deemed
       dividend on preferred stock conversion.
  15
  Delco Remy International, Inc.
                   Condensed Consolidating Statement of Cash Flows
                      For the Nine Months Ended April 30, 1998
                              (in thousands of dollars)
  Delco Remy
                                                        International,
                                                              Inc.                          Non-
                                                            (Parent      Subsidiary      Guarantor
                                                         Company Only)   Guarantors    Subsidiaries    Eliminations   Consolidated
                                                        ----------------------------------------------------------------------------
  Operating Activities:
  Net income                                               $   3,416      $  14,345      $     644      $ (14,989)     $   3,416
  Extraordinary item                                             252          2,099             --             --          2,351
  Adjustments to reconcile  net income to net cash
    provided by (used in) operating activities:
       Depreciation and amortization                              --         15,855            (45)            --         15,810
       Equity in earnings of subsidiaries                    (13,753)            --             --         13,753 (a)         --
       Deferred income taxes                                   7,614         (7,065)          (959)            --           (410)
       Non-cash interest expense                               1,721          2,380             --             --          4,101
       Minority interest in subsidiaries                          --            655            (27)            --            628
       Preferred dividend requirement of
          subsidiary                                              --             --             --          1,236 (b)      1,236
       Changes in operating assets and
          liabilities, net of acquisitions:
               Accounts receivable                                --        (28,582)        (2,012)            --        (30,594)
               Inventories                                        --         (1,194)        (1,792)            --         (2,986)
               Accounts payable                                  (67)       (12,567)         1,887             --        (10,747)
               Intercompany accounts                        (103,690)       103,563            127             --             --
               Other current assets and liabilities           (5,056)         2,884             41             --         (2,131)
               Accrued restructuring                              --           (907)            --             --           (907)
               Other non-current assets and
                 liabilities, net                            (14,505)        30,763          2,455             --         18,713
                                                        ----------------------------------------------------------------------------
  Net cash provided by (used in) operating activities       (124,068)       122,229            319             --         (1,520)
  
  Investing activities:
  Purchasing of property and equipment                            --        (24,566)        (4,499)            --        (29,065)
                                                        ----------------------------------------------------------------------------
  Net cash used in investing activities                           --        (24,566)        (4,499)            --        (29,065)
  
  Financing activities:
  
  Proceeds from issurance of long term debt                  140,000             --             --             --        140,000
  Payments on long term debt                                 (16,000)       (96,669)            --             --       (112,669)
  Other financing activities                                      --          3,170             88             --          3,258
                                                        ----------------------------------------------------------------------------
  Net cash provided by (used in) financing activities        124,000        (93,499)            88             --         30,589
  
  Effect of exhange rate changes on cash                          --             --             86             --             86
                                                        ----------------------------------------------------------------------------
  Net increase (decrease) in cash and cash equivalents           (68)         4,164         (4,006)            --             90
  
  Cash and cash equivalents at beginning  of period               68          1,434          1,904             --          3,406
                                                        ----------------------------------------------------------------------------
  Cash and cash equivalents at end of period               $      --      $   5,598      $  (2,102)     $      --      $   3,496
                                                        ============================================================================
  ------------------
  (a)  Elimination of equity in earnings of subsidiary.
  (b)  Recording of preferred dividend requirement of subsidiary.
  16
  ITEM 2
  
                       Management's Discussion and Analysis of
                    Financial Condition and Results of Operations
  Results of Operations:
  
                                                             Three Month Period                         Nine Month Period
                                                               Ended April 30                            Ended April 30
                                                  --------------------------------------  ----------------------------------------
                                                          1998                1997                 1998                 1997
                                                  ------------------ -------------------  -------------------- -------------------
                                                   Amount       %      Amount        %      Amount       %       Amount        %
                                                  ================== ===================  ==================== ===================
                                                                  (in thousands of dollars, except per share amounts )
  Net sales                                       $217,083   100.0%   $177,727    100.0%   $619,362    100.0%   $509,717    100.0%
  
  Cost of goods sold                               172,349    79.4%    139,639     78.6%    497,287     80.3%    401,681     78.8%
                                                  ------------------ -------------------  -------------------- -------------------
  
  Gross profit                                      44,734    20.6%     38,088     21.4%    122,075     19.7%    108,036     21.2%
  
  Selling, engineering, and administrative          24,461    11.3%     22,713     12.8%     66,627     10.8%     65,782     12.9%
                                                  ------------------ -------------------  -------------------- -------------------
  
  Operating income                                  20,273     9.3%     15,375      8.7%     55,448      9.0%     42,254      8.3%
  
  Interest expense                                   9,748     4.5%     10,124      5.7%     30,398      4.9%     28,839      5.7%
  
  Minority interest in income of subsidiaries          524     0.2%        383      0.2%      1,545      0.2%        628      0.1%
  
  Income taxes                                       4,074     1.9%      1,917      1.1%      9,769      1.6%      5,264      1.0%
  
  Deemed dividend on preferred stock conversion         --                  --                1,639                   --
  
  Preferred dividend requirement of subsidiary          --                 410      0.2%        645      0.1%      1,236      0.2%
                                                  ------------------ -------------------  -------------------- -------------------
  
  Income from continuing operations                  5,927     2.7%      2,541      1.4%     11,452      1.8%      6,287      1.2%
  
  Discontinued operations:
    Loss from discontinued businesses
    (net of  applicable tax benefit)                    --                 194      0.1%         --      0.0%        520      0.1%
  Extraordinary item:
    Write-off of debt issuance costs net of tax         --                  --                1,803                2,351
                                                  ------------------ -------------------  -------------------- -------------------
  
  Net  income                                      $ 5,927     2.7%    $ 2,347      1.3%    $ 9,649      1.6%    $ 3,416      0.7%
                                                  ================== ===================  ==================== ===================
  
  Adjusted net income
    Net income                                     $ 5,927             $ 2,347              $ 9,649              $ 3,416
    Non-recurring deemed dividend on preferred
      stock conversion   (A)                            --                  --                1,639                   --
    Loss from discontinued operations                   --                 194                   --                  520
    Extraordinary items                                 --                  --                1,803                2,351
                                                   -------             -------             --------              -------
    Adjusted net income                            $ 5,927             $ 2,541             $ 13,091              $ 6,287
                                                   =======             =======             ========              =======
  
  Adjusted earnings per share
    Adjusted net income                            $  0.23             $  0.10             $   0.50              $  0.24
  
    Adjusted weighted shares outstanding (B)        26,087              26,087               26,087               26,087
  Notes:
  
  (A)  Non-recurring, non-cash charge resulting from the offerings.
  
  (B)  Adjusted weighted shares  outstanding  assumes the exercise of all warrants
       and all  shares  outstanding  at April 30,  1998 were  outstanding  for all
       periods.
  17
  Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
  
       Net Sales Net sales were $217.1 for the three  months ended April 30, 1998,
  an increase of $39.4, or 22.2%,  from $177.7 for the comparable  period of 1997.
  Part of the increase resulted from the inclusion of World Wide and Ballantrae in
  the amount of $28.3.  Additionally a strong market for heavy duty OEM electrical
  products as well as automotive OEM demand from General Motors contributed to the
  net sales increase.
  
       Gross  Profit  Gross  profit was $44.7 for the three months ended April 30,
  1998, an increase of $6.6,  or 17.3%,  from $38.1 for the same period last year.
  The increase was attributable to the inclusion of World Wide  Automotive,  which
  was purchased in May, 1997 and Ballantrae, purchased in December, 1997. If World
  Wide and Ballantrae  had not been included,  the Gross Profit percent would have
  been  20.3%,  or  about a 1.1  percentage  point  decrease  from  21.4%  for the
  comparable period in 1997. The primary factors  contributing to this change were
  start-up costs for new focus factories and the reclassification of certain costs
  included in SE&A in the prior year but charged to cost of sales in fiscal  1998.
  These charges were  partially  offset by continued  strong OEM volume as well as
  cost reductions in the focus factories.
  
       Selling,  Engineering and Administrative Expenses Selling,  engineering and
  administrative  (SE&A)  expenses were $24.5 for the three months ended April 30,
  1998, an increase of $1.8, or 7.9%,  from $22.7 for the prior year. As a percent
  of net sales,  SE&A  expenses  were  reduced to 11.3% for the three months ended
  April 30, 1998 from 12.8% for the  comparable  period of 1997.  The  increase in
  SE&A  expense was  attributable  to the  addition  of World Wide and  Ballantrae
  offset by the  reclassification  of certain  SE&A  expenses  to cost of sales as
  noted above.
  
       Operating  Income  Operating  income was $20.3 for the three  months  ended
  April 30,  1998,  an  increase of $4.9 from $15.4 for the  comparable  period of
  1997. As a percentage of net sales,  operating  income increased to 9.3% for the
  three  months  ended  April 30, 1998 from 8.7% for the same period of last year.
  The increase in operating  income was  primarily  the result of the inclusion of
  World Wide Automotive and Ballantrae in the current period.  Operating income as
  a percent of net sales,  excluding  World Wide and  Ballantrae  was 9.1% for the
  three  months  ended  April 30, 1998  compared  to 8.7% for the prior year.  The
  increase was due to the  additional  volume and cost  improvements  as discussed
  above.
  
       Interest Expense Interest expense for the three months ended April 30, 1998
  was $9.7,  a decrease of $0.4,  or 4.0%,  compared  to $10.1 for the  comparable
  period of 1997. The reduction in interest  expense is primarily  attributable to
  the  recapitalization of the Company in December 1997. At that time, the Company
  raised  $51.3  million with an initial  public  offering of its common stock and
  used the funds to repay debt. Concurrently with the initial public offering, the
  Company  issued $145 million 8 5/8% senior notes to  refinance  higher  interest
  rate debt.
  
       Income  Taxes  Income  taxes for the three months ended April 30, 1998 were
  $4.1 and $1.9 for the same  period of 1997.  The  Company's  effective  tax rate
  varies  between 39% to 40%,  based on income levels and other factors  involving
  the states and countries in which the company does business.
  
                                         18
  Loss from Discontinued Operations While there was no loss from discontinued
  operations  in 1998,  the  Company  did incur  such a loss of $0.2 for the three
  months  ended  April 30,  1997  relating  to the  Company's  Powder  Metal Forge
  Business (PMF).
  
       Net Income Net income was $5.9 for the three  months  ended April 30, 1998,
  an increase of $3.6,  from the $2.3 reported for the comparable  period of 1997.
  The increase in net income was  principally the result of the inclusion of World
  Wide and  Ballantrae  partially  offset by  start-up  costs at the two new focus
  factories.
  
  Nine Months Ended April 30, 1998 Compared to Nine Months Ended April 30, 1997
  
       Net Sales Net sales were $619.4 for the nine months  ended April 30,  1998,
  an increase of $109.7,  or 21.5%,  from $509.7 for the same period of 1997.  The
  increase resulted from the inclusion of World Wide and Ballantrae's net sales of
  $63.5. The sales  improvement was attributable to the acquisitions of World Wide
  and  Ballantrae  and gains in the  Powertrain  /  Drivetrain  operations  of the
  Company's  aftermarket  business.  Additionally,  the Company experienced strong
  demand from the heavy duty OEM market and increased GM volume compared to 1997.
  
       Gross  Profit  Gross  profit was $122.1 for the nine months ended April 30,
  1998,  an increase  of $14.1,  or 13.1%,  from $108.0 for the nine months  ended
  April 30,  1997.  As a  percentage  of net sales,  gross profit was lower by 1.5
  percentage  points for the nine  months  ended April 30, 1998 from 21.2% for the
  comparable period of 1997. This change was primarily  attributable to a shift in
  aftermarket  sales  volume from higher  margin  heavy duty to lower margin light
  duty product lines,  in addition to  reclassification  of certain  expenses from
  SE&A to  overhead  and the  startup  costs  associated  with the four new  focus
  factories.
  
       Selling,  Engineering and Administrative  Expenses SE&A expenses were $66.6
  for the nine months ended April 30,  1998,  an increase of $0.8,  or 1.2%,  from
  $65.8 for the prior year.  As a percentage  of net sales,  SE&A expenses fell to
  10.8% for the nine months  ended  April 30,  1998 from 12.9% for the  comparable
  period  of  1997.  The  reduction  in  expenses  occurred  principally  from the
  reclassification  of certain expenses to cost of sales,  partially offset by the
  inclusion of World Wide and Ballantrae in the current period.
  
       Operating Income Operating income was $55.4 for the nine months ended April
  30, 1998,  an increase of $13.1,  or 31.0%,  from $42.3 for the same period last
  year. The improvement in operating income reflects the acquisition of World Wide
  and  Ballantrae  in the  current  period,  as well as the higher  volume and the
  impact of the relocation to focus factories discussed above. Operating income as
  a percentage of net sales  excluding  World Wide and Ballantrae was 8.9% for the
  nine months ended April 30, 1998,  compared to 8.3% in the comparable  period of
  1997.
  
       Interest  Expense Interest expense for the nine months ended April 30, 1998
  was $30.4,  an increase of $1.6, or 5.6%,  compared to $28.8 for the  comparable
  period of 1997. The increase was primarily due to the  additional  debt incurred
  to finance the  acquisitions of World Wide and  Ballantrae.  The additional debt
  was partially offset by the recapitalization initiatives in December, 1997.
  
       Income Taxes Income taxes for the nine months ended April 30, 1998 of $9.8,
  and $5.3 for the  comparable  period of 1997,  represent  effective tax rates of
  39.2% and 39.6%, respectively.
  
                                         19
  Non-recurring  Deemed Dividend on Preferred Stock  Conversion.  In December
  1997,  a  deemed  dividend  of a  subsidiary  arose  from  the  exchange  of the
  redeemable exchangeable preferred stock of subsidiary for the excess of the fair
  value of the 8% Subordinated Debenture over the carrying value of the redeemable
  exchangeable  preferred stock of subsidiary  resulting in a non-recurring charge
  of $1.6 for the nine month period ending April 30, 1998.
  
       Loss from Discontinued Operations While there was no loss from discontinued
  operations  in 1998,  the  Company  did  incur  such a loss of $0.5 for the same
  period of 1997. The loss relates to the Company's PMF business.
  
       Write Off of Debt Issuance Costs In December 1997, certain debt was retired
  out of the proceeds from the issuance of the senior notes and the initial public
  offering of stock.  Unamortized  issuance  costs,  net of income taxes,  of $1.8
  relating to the retired  debt was  written  off in the nine month  period  ended
  April 30,  1998.  In August  1996,  certain debt was retired out of the proceeds
  from the 10 5/8% senior subordinated notes due 2006. Unamortized issuance costs,
  net of income taxes, of $2.4 relating to the retired debt was written off in the
  nine month period ended April 30, 1997.
  
       Net Income Net income was $9.6 for the nine months ended April 30, 1998, an
  increase of $6.2,  from $3.4 for the  comparable  period of 1997.  Adjusted  net
  income  before  non-recurring  charges was $13.1 for the nine months ended April
  30, 1998 compared to $6.3 for the same period last year.
  
  Liquidity and Capital Resources
  
       The  Company's  liquidity  needs include  required  debt  service,  working
  capital needs and the funding of capital  expenditures.  The Company anticipates
  lower working  capital  requirements  from a reduction in the inventory that was
  increased to provide for the  relocation  to the focus  factories as well as the
  shut down of the Meridian, Mississippi and Anderson, Indiana OEM facilities.
  
       Interest   payments  under  the  Company's   indebtedness  will  result  in
  significant liquidity requirements for the Company.
  
       Cash interest expense for the nine months ended April 30, 1998 and the nine
  months ended April 30, 1997 was $27.1 and $22.3, respectively. Non-cash interest
  accrued  during the nine months  ended April 30, 1998 and the nine months  ended
  April 30,1997 was $3.3 and $6.5, respectively, or 10.8% and 22.5%, respectively,
  of total  interest  expense.  The Company has no  significant  requirements  for
  principal payments until the year 2006.
  
       The  Company's  capital  expenditures  were $15.0 for the nine months ended
  April 30, 1998, a reduction of $14.1 from the $29.1 reported for the same period
  last year. The Company has budgeted capital  expenditures of approximately  $9.0
  for the  remainder of fiscal year 1998.  Planned  capital  expenditures  consist
  primarily of production  equipment for the Company's new focus  factories,  cost
  reduction and quality initiatives, as well as upgrades in machinery,  technology
  and environmental compliance.
  
                                         20
  The Company's principal sources of cash to fund its liquidity needs will be
  net cash from  operating  activities  and  borrowings  under the  Senior  Credit
  Facility.  The Senior Credit Facility  provides $180.0 of revolving loans. As of
  April 30, 1998 there were $48.3 in borrowings  outstanding,  net of cash,  under
  the Senior Credit Facility.
  
       The  Company's  initial  public  offering of 4.6 million  shares of Class A
  Common Stock in December 1997 and January 1998  generated net proceeds of $51.3.
  The Company  also issued 8 5/8% Senior  Subordinated  Notes with net proceeds of
  $141.4 in December  1997.  These  proceeds were used to pay off debt with higher
  interest  rates and less  favorable  terms.  On April 30, 1998 the debt to total
  capitalization of the Company was 77.8% as compared to 92.5% on April 30, 1997.
  
       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 and working capital needs for
  the foreseeable  future,  although no assurance can be given in this regard. The
  Company's  future  operating  performance  and  ability to service,  extend,  or
  refinance its indebtedness will be subject to future economic  conditions and to
  financial, business and other factors that are beyond the Company's control.
  
  Seasonality
  
       The Company's business is moderately  seasonal,  as its major OEM customers
  historically  have one- to two-week  summer  shutdowns of operations  during the
  fourth fiscal quarter. In addition,  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 second and fourth quarter results reflect
  the effects of these shutdowns.
  
  Year 2000
  
       The  Company  has  developed  a plan to  modify  the  existing  information
  technology to recognize the year 2000 and has begun converting its critical data
  processing systems. The Company currently expect the project to be substantially
  complete by early  calendar year 1999.  The estimated cost of this plan includes
  internal  costs,  but  excludes  the cost to upgrade and replace  systems in the
  normal  course of  business.  The Company does not expect this project to have a
  material effect on operations.
  
  Effects of Inflation
  
       The Company believes that the relatively  moderate  inflation over the last
  few  years  has  not had a  significant  impact  on the  Company's  revenues  or
  profitability  and that it has been able to offset the effects of  inflation  by
  increasing  prices or by realizing  improvements  in operating  efficiency.  The
  Company  has  provisions  in many of its  contracts  which  provide for the pass
  through of  fluctuations  in the price of certain raw materials,  such as copper
  and aluminum.
  
                                         21
  Foreign Sales
  
       Approximately  20.0% of the  Company's net sales is derived from sales made
  to customers in foreign countries. Because of these foreign sales, the Company's
  business is subject to the risks of doing business  abroad,  including  currency
  exchange rate  fluctuations,  limits on repatriation  of funds,  compliance with
  foreign laws and other economic and political uncertainties.
  
  Forward-Looking Statements
  
       Statements  in  this  Form  10 Q,  which  are  not  historical  facts,  are
  forward-looking   statements  that  involve  certain  risks  and  uncertainties,
  including,  but not limited to risks  associated  with the uncertainty of future
  financial results, acquisitions, additional financing requirements,  development
  of new products and services, the effect of competitive products or pricing, the
  effect of economic conditions and other uncertainties  detailed in the Company's
  other filings with the Securities and Exchange Commission.
  
                                         22
  PART II. OTHER INFORMATION
  
  Item 1.   Legal Proceedings.
  
            None
  
  Item 2.   Changes in Securities.
  
            None
  
  Item 3.   Defaults Upon Senior Securities.
  
            None
  
  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) Reports on Form 8-K. The Company has not filed any reports on Form
            8-K during the quarterly period ended April 30, 1998.
  
                                         23
  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:    June 12, 1998                      By: /s/ David L. Harbert
                                                   David L. Harbert
                                                   Executive Vice President and
                                                   Chief Financial Officer
  
  Date:    June 12, 1998                      By:  /s/ David E. Stoll
                                                    David E. Stoll
                                                    Vice President and Controller
                                                    Principal Accounting Officer
  
                                         24