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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

or

EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     .

COMMISSION FILE NO. 1-13683

DELCO REMY INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

(765) 778-6499

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

Yes x            No ¨

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

Yes ¨            No x

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

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Delco Remy International, Inc. and Subsidiaries

INDEX

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PART I FINANCIAL INFORMATION

Item 1.    Financial Statements

Delco Remy International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

See Notes to Condensed Consolidated Financial Statements

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Delco Remy International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands)

See Notes to Condensed Consolidated Financial Statements

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Delco Remy International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

See Notes to Condensed Consolidated Financial Statements

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DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollars in thousands)

1. Basis of Presentation

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

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

2. Additional Balance Sheet Information

The components of inventory were as follows:

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3. Accumulated Other Comprehensive Income (Loss)

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

The Company’s total comprehensive loss was as follows:

4. Restructuring Charges

In the first quarter of 2003, the Company completed plans for the closure of its starter and alternator manufacturing operations in Anderson, Indiana and electrical aftermarket remanufacturing and distribution facilities in Reed City, Michigan, and the consolidation of its alternator and starter remanufacturing operations in Mississippi. These actions are part of the Company’s ongoing efforts to reduce cost and improve efficiencies. A charge of $45,085 was recorded in the first quarter of 2003 for the estimated cost of the plan in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 146. The charge included $12,926 for the estimated cost of various voluntary and involuntary employee separation programs associated with the resulting workforce reductions of approximately 600 employees. A total of $2,061 was paid in the first quarter of 2003 and $9,268, $866 and $731 are expected to be paid in the last nine months of 2003, and in 2004 and 2005, respectively. The charge also included $37,283 for the write down of certain assets and accrual of certain contract termination costs resulting from these actions, $257 of miscellaneous costs, a $1,835 pension plan curtailment charge and is net of curtailment gain of $7,216 relative to the post-employment benefit plan. Additional restructuring charges of between $5,000 and $8,000 associated with these actions are expected to be recorded during the last nine months of 2003. An additional charge of $428 for the write down of assets was recorded, in discontinued operations, in the first quarter of 2003 in connection with the Company’s plans to exit its contract remanufacturing operation for gas engines in Beaumont, Texas (see Note 8).

In 2002, the Company recorded a charge of $2,824 in conjunction with plans for the closure of the manufacturing and administrative functions of its discontinued retail aftermarket gas engine business. The charge, which was reported as a component of the loss from discontinued operations, included $1,053 for the estimated cost of various voluntary and involuntary employee separation programs associated with workforce reductions of approximately 165 production and administrative employees. Payments of $300 and $304 were made in 2002 and first quarter of 2003, respectively, and the remainder of $449 is expected to be paid during the last nine months of 2003. The charge also included $1,771 for the estimated cost of closing facilities.

In 2001, the Company recorded a charge of $39,349 in conjunction with plans for the closure and realignment of certain manufacturing facilities and administrative functions in the United States (“U.S.”), Canada and Europe. The charge included $26,727 for the estimated cost of various voluntary and involuntary

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employee separation programs associated with workforce reductions of approximately 820 production and administrative employees. A total of $2,482, $15,001 and $4,809 were paid in 2001, 2002 and the first quarter of 2003, respectively, and the remainder of approximately $4,435 is expected to be paid in 2004.

In May 2000, the Company recorded a charge of $35,222 for the realignment of certain manufacturing facilities. The charge included $27,098 for the estimated cost of various voluntary and involuntary employee separation programs associated with workforce reductions of approximately 860 employees, primarily production employees. A total of $5,011, $15,961, $3,087 and $2,931 were paid in fiscal year 2000, the five months ended December 31, 2000 and the years ended December 31, 2001 and 2002, respectively. An additional $3 was paid in the three months ended March 31, 2003 and approximately $105 is expected to be paid in the last nine months of 2003.

The following table summarizes the reserve for restructuring charges:

5. Recently Issued Accounting Standards

In 2001, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS No. 143”). SFAS No. 143 requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred, which is adjusted to its present value each subsequent period. In addition, companies must capitalize a corresponding amount by increasing the carrying amount of the related long-lived asset, which is depreciated over the useful life of the related long-lived asset. The Company adopted SFAS No. 143 effective January 1, 2003, and the adoption of this statement did not have a material impact on its consolidated financial position or results of operations.

In 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS No. 145”). SFAS No. 145 eliminates the classification of debt extinguishments as extraordinary items. The provisions of SFAS No. 145 related to the rescission of FASB Statements No. 44 and 64 and amendment of SFAS No. 13 and Technical Corrections were adopted by the Company in the second quarter of 2002. Adoption of these provisions did not have a material effect on the Company’s results of operations, financial position or cash flows. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 were adopted effective January 1, 2003, and the extraordinary items resulting from debt extinguishments in 2002 and 2001 will be reclassified as interest expense. Accordingly, interest expense, net, increased approximately $1,800 and income from continuing operations decreased approximately $1,100 in the second quarter of 2002 and interest expense decreased approximately $1,100 and the loss from continuing operations decreased approximately $700 in the second quarter of 2001.

In 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal

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activity be recognized when the liability is incurred. Severance pay under SFAS No. 146, in many cases, would be recognized over the remaining service period rather than at the time the plan is communicated. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company adopted SFAS No. 146 for any actions initiated after January 1, 2003, and any future exit costs or disposal activities will be subject to this statement.

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

6. Divestiture of Non-Core Businesses

On March 7, 2003 and on March 19, 2003 the Company successfully completed the sale of two non-core businesses, Tractech and Kraftube, which were engaged in the manufacturing of traction control devices and components for the air-conditioning industry, respectively. The net proceeds from the sales were $27,876 and a gain was recorded on the sales of $2,417, subject to final working capital adjustments. These non-core businesses are treated as discontinued operations beginning in the first quarter of 2003 and all prior periods have been reclassified accordingly.

7. Acquisitions

During the three months ended March 31, 2003, the Company made payments totaling $3,064 under contractual put agreements to purchase additional shares from the minority shareholders of World Wide Automotive, Inc. (“World Wide”), which was acquired in 1997. These payments increased the Company’s ownership percentage of World Wide from 94.0% to 97.2%. The Company made payments totaling $1,314 under contractual put agreements to purchase additional shares from the minority shareholder of Power Investments, Inc. (“Power”), which was acquired in 1996. These payments increased the Company’s ownership percentage of Power from 93.4% to 95.1%. The Company also made payments of $459 on notes issued in connection with the acquisition of certain parts of the Delphi Corporation (“Delphi”) alternator business in the fourth quarter of 2002. Also during the three months ended March 31, 2003, the Company completed the acquisition of 51% of Hubei Delphi Automotive Generators Company, Ltd. (“Hubei”), a manufacturer of automotive and heavy duty generators for the original equipment market and aftermarket based in China, for $3,600 in cash. Net assets acquired were $8,100 ($3,800 net of minority interest), including cash of $3,600.

8. Discontinued Operations

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

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at December 31, 2002, have been reclassified to reflect the classification of Tractech and Kraftube as discontinued operations.

In the first quarter of 2003, the Company completed plans to exit its contract remanufacturing operation for gas engines in Beaumont, Texas. Operating results for this business have been classified as discontinued operations and include a charge of approximately $1,000 for the write-down of fixed assets and inventory.

In the second quarter of 2002, the Company concluded that its retail aftermarket gas engine business does not fit with its strategic objectives and completed plans to exit the business. In connection with the discontinuance of the business, a charge of $28,248 was recorded in 2002 to write down the relevant assets to their estimated realizable value. An additional charge of $2,824 was recorded in 2002 for the estimated cost of employee termination benefits and closure of facilities (Note 4). Estimated future taxable income relative to discontinued operations, both in the U.S. and Canada, and reversing taxable temporary differences, are not sufficient to absorb the losses recorded. Therefore, a valuation allowance equal to the 2002 income tax effect of the losses was established in the third quarter of 2002.

Assets of $3,321 at March 31, 2003 consisted primarily of inventories. Liabilities of $6,922 at March 31, 2003 consisted primarily of accounts payable and accrued restructuring charges. Net sales, interest expense and loss before income tax from all discontinued operations are as follows:

9. Income Taxes

The first quarter rate for 2002 is reflective of the U.S. statutory rate (35%), adjusted for state income taxes and the tax impact from foreign operations. The first quarter rate for 2003 is not reflective of the U.S. statutory rate. This is due primarily to management’s decision to establish a valuation allowance against the tax benefit on first quarter 2003 domestic losses. Management intends to provide tax benefit for 2003 first quarter domestic losses at such time and in such amount as is supported by consolidated positive pretax income of the domestic subsidiaries. The first quarter rate reflects the tax impact of foreign operations, including dividend withholding taxes of $2,800.

10. Commitments and Contingencies

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

Remy Mexico Holdings, S. de R.L. de C.V. (“RMH”), an indirect subsidiary of the Company, and GCID Autopartes, S.A. de C.V. (“GCID”) are parties to a series of agreements, including a partnership agreement. The partnership agreement created DRM which operates certain manufacturing facilities in Mexico. GCID is the minority partner with a 24% ownership interest. RMH and GCID signed a letter of intent on or about May 3, 2000, whereby GCID agreed to terminate certain of the agreements and to sell its 24% interest in exchange for a $13,000 termination payment by RMH to GCID, but the transaction was never finalized. In June 2001, GCID declared RMH in default under the partnership agreement, alleging that RMH had failed to conduct the business of the partnership in accordance with that agreement. In August 2001, GCID instituted

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an arbitration proceeding before the American Arbitration Association seeking damages for the alleged breaches of the partnership agreement and breaches of fiduciary duty. RMH has denied any such breaches.

On January 2, 2002, GCID notified RMH that it was terminating the partnership for the alleged breach of the partnership agreement by RMH and demanded that RMH purchase GCID’s partnership interest in DRM. On March 11, 2002, GCID filed the First Amended Arbitration Demand adding additional claims and parties, including DRM and other affiliates of RMH: Remy Componentes, S. de R.L. de C.V. and Delco Remy America, Inc. (together with RMH, the “Named Parties”). The First Amended Demand sought damages for breach of fiduciary duty, breaches of various contracts between and among the various parties, and tortious interference with contractual relations. The damages included a claim of approximately $13,000 for the purchase of GCID’s interest in the Company and a claim for $17,000 for the alleged breach of a Service Agreement between the Company and GCI Services, S.A. de C.V. (“GCIS”), an affiliate of GCID, pursuant to which GCIS provides labor to the Partnership. On September 30, 2002, GCID and GCIS served expert reports claiming that GCID is owed approximately $23,300 for the purchase of its partnership interest in DRM and that GCIS is owed approximately $17,650 under the Service Agreement. On January 24, 2003, GCID and GCIS filed a Second Amended Arbitration Demand adding additional claims of breach of contract against the Named Parties. On January 31, 2003, the Named Parties filed an Answer to the Second Amended Demand denying liability for all claims. On March 28, 2003, GCID and GCIS served revised expert reports claiming that GCID is owed approximately $53,000 for the purchase of its partnership interest in DRM and that GCIS is owed approximately $23,000 under the Service Agreement. On April 25, 2003, the Named Parties filed an expert report denying GCID’s and GCIS’s monetary claims and setting forth an alternative calculation of the purchase price for GCID’s interest in the partnership.

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

The arbitration hearing is scheduled to begin May 19, 2003 and if not completed by May 23, 2003, will continue on August 19, 2003.

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

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

On April 16, 2003, the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America (the “UAW”) and its Local Union 662 filed suit against the Company and Delco Remy America, Inc. (“DRA”) in Federal District Court in the Southern District of Indiana, Indianapolis Division. The lawsuit was filed under Section 301 of the Labor Management Relations Act, 29 U.S.C. Sec. 185, seeking enforcement of an expired Supplemental Unemployment Benefits (“SUB”) plan. The plaintiffs allege that the SUB plan provides supplemental unemployment benefits for 52 weeks and separation pay in

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an amount exceeding $20,000 for employees who were terminated as a result of the closure of DRA’s Anderson, Indiana production facilities at the end of March 2003. The plaintiffs also seek to enforce terminated provisions of a Health Care Program which the plaintiffs allege provides the terminated employees with 25 months of continued hospital, surgical, medical, hearing aid, prescription drug, mental health, substance abuse and vision insurance coverage. The terminated employees were represented by the UAW and its Local Union 662 under various agreements which expired on March 31, 2003. The lawsuit was filed shortly after the UAW membership failed to ratify DRA’s last, best and final offer for a Shutdown Agreement. The Company will file an answer or other responsive pleading on or before June 16, 2003. The Company denies the material allegations of the complaint, denies any wrongdoing and intends to defend itself vigorously.

The Remy Reman facilities in Mississippi identified certain possible violations of state air laws and notified the state environmental agency under the state voluntary audit disclosure rules. The state requested further information regarding the disclosure and the subsidiary is in the process of responding to the information requests. The facilities are currently in compliance with the air permit requirements.

In April 2003, the Virginia Department of Environmental Quality issued a letter with respect to similar possible violations voluntarily disclosed to them with respect to the World Wide facility in Virginia and indicated that the necessary permit application had been submitted, the permit was being drafted and no further corrective action was necessary. At this time, it is unknown whether the state environmental agencies intend to pursue enforcement actions for the past violations or whether penalties, if sought, will be material. The Company does not believe that the costs of the matters, if any, will have a material adverse effect on the Company’s results of operations, business or financial condition.

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

11. Derivative Financial Instruments

Prior to February 2003, the Company entered into a series of non-deliverable currency forward contracts in order to hedge anticipated U.S. dollar-denominated intercompany sales of inventory by its South Korean subsidiary to a U.S. subsidiary against fluctuations between the South Korean Won and U.S. dollar. The critical terms of the hedges are the same as the underlying forecasted transactions, and the hedges are considered highly effective to offset the change in the fair value of the cash flows from the hedged transactions. These contracts normally mature within a year. At maturity, each contract is settled at the difference between fair value and contract value. Derivative contracts that were entered into prior to February 2003 were designated as cash flow hedges and, accordingly, changes in fair value were charged to other comprehensive income (loss) (see Note 3).

Beginning in February 2003, the Company entered into a series of non-deliverable currency forward contracts and did not designate these as hedges. Therefore, gains and losses arising from the use of the non-deliverable forwards are recorded in the consolidated statement of operations when gains and losses arising from the underlying hedged transactions affect consolidated earnings.

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

The Company conducts a significant portion of its business through its subsidiaries. The Company’s 8 ⁵/8% Senior Notes Due 2007, 10 ⁵/8% Senior Subordinated Notes Due 2006 and 11% Senior Subordinated Notes Due 2009 are fully and unconditionally guaranteed, jointly and severally, by certain direct and indirect subsidiaries of the Company (the “Subsidiary Guarantors”). Certain of the Company’s subsidiaries do not guarantee the notes (the “Non-Guarantor Subsidiaries”). The claims of creditors of Non-Guarantor Subsidiaries have priority over the rights of the Company to receive dividends or distributions from such subsidiaries.

Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at March 31, 2003 and December 31, 2002 and for the three month periods ended March 31, 2003 and 2002.

The equity method has been used by the Company with respect to investments in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in Non-Guarantor Subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented based on management’s determination that they do not provide additional information that is material to investors.

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

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Delco Remy International, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

March 31, 2003

(Unaudited)