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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number 1-12297

United Auto Group, Inc.

Registrant’s telephone number, including area code:

     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 þ          No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined Rule 12b-2 of the Exchange Act)     Yes þ          No o

     As of October 31, 2003, there were 41,470,038 shares of voting common stock outstanding.

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UNITED AUTO GROUP, INC.

See Notes to Consolidated Condensed Financial Statements

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UNITED AUTO GROUP, INC.

See Notes to Consolidated Condensed Financial Statements

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UNITED AUTO GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW

See Notes to Consolidated Condensed Financial Statements

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UNITED AUTO GROUP, INC.

See Notes to Consolidated Condensed Financial Statements

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UNITED AUTO GROUP, INC.

1.     Interim Financial Statements

      The information presented as of September 30, 2003 and for the three and nine month periods then ended is unaudited, but includes all adjustments (consisting only of normal and recurring adjustments) which the management of United Auto Group, Inc. (the “Company”) believes to be necessary for the fair presentation of results for the periods presented. The results for the interim periods are not necessarily indicative of results to be expected for the year. These consolidated condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2002, which were included as part of the Company’s Annual Report on Form 10-K. In order to maintain consistency and comparability of financial information between periods presented, certain reclassifications have been made to the Company’s prior year consolidated condensed financial statements to conform to the current year presentation.

      During 2003 and 2002, the Company sold 4 and 5 dealerships, respectively, which qualified for treatment as discontinued operations in accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” Consequently, such dealerships have been reported as discontinued operations in the consolidated condensed financial statements. Combined financial information of these dealerships is as follows:

      In March 2003, the Financial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force (“EITF”) finalized Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor” (“EITF 02-16”), which addresses the accounting treatment for vendor allowances. EITF 02-16 provides that cash consideration received from a vendor should be presumed to be a reduction of the prices of the vendor’s product and should therefore be shown as a reduction in the purchase price of the merchandise. To the extent that the cash consideration represents a reimbursement of a specific, incremental and identifiable cost, then those vendor allowances should be used to offset such costs. Historically, the Company recorded non-refundable floor plan credits and certain other non-refundable credits

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

when received. As a result of EITF 02-16, these credits are now presumed to be reductions in the cost of purchased inventory and are deferred until the related vehicle is sold. In accordance with EITF 02-16, the Company recorded a cumulative effect of accounting change as of January 1, 2003, the date of adoption, that decreased net income by $3.1 million, or $0.07 per diluted share.

      Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”), was issued in April 2003. SFAS 149 clarifies the circumstances under which a contract with an initial net investment meets the characteristics of a derivative and clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS 149 amends certain other existing pronouncements. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and should be applied prospectively. The adoption of SFAS 149 is not expected to have an impact on the Company’s consolidated financial position, result of operations or cash flow.

      SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” was issued in May 2003. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003. This statement establishes standards for an issuer’s classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a freestanding financial instrument as a liability (or an asset in some circumstances). The adoption of SFAS 150 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flow.

      FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of APB No. 50 (“FIN 46”), was issued in January 2003. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In October 2003, the effective date of FIN 46 was deferred to the first interim or annual period beginning after December 15, 2003. During the deferral period, the FASB will expose for comment an amendment to FIN 46. Due to the uncertainty relating to the final rules, the Company is not yet able to determine the effect, if any, the adoption of the final rules may have on the Company’s consolidated financial position, results of operations or cash flow.

      The EITF is currently discussing Issue No. 03-01, “The Meaning of Other-than-Temporary Impairment and Its Application to Certain Investments.” The issue addresses how to determine the meaning of other-than-temporary for impairments and how that concept should be applied to investments accounted for under the cost or equity method, or investments classified as either available-for-sale or held-to-maturity under SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities.” Due to the preliminary nature of these discussions, the Company is not yet able to determine the effect, if any, the adoption of the final rules may have on the Company’s consolidated financial position, results of operations or cash flow.

      The EITF is also currently discussing Issue No. 03-09, “Evaluating the Criteria in Sub-Paragraph 11(d) of SFAS 142, Goodwill and Other Intangible Assets, Regarding Renewal or Extension When Determining the Useful Life of an Intangible Asset.” The issue addresses the evaluation of certain criteria in determining whether an intangible asset has an indefinite useful life or, the appropriate useful life if it is determined to have a finite useful life. Due to the preliminary nature of these discussions, the Company is not yet able to determine the effect, if any, the adoption of the final rules may have on the Company’s consolidated financial position, results of operations or cash flow.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the amounts of revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. The accounts requiring the use of significant estimates include accounts receivable, inventories, income taxes, intangible assets and certain reserves.

      Franchise value represents the estimated value of franchises acquired in business combinations. Goodwill represents the excess of cost over the fair value of tangible and identified intangible assets acquired in business combinations. Goodwill and franchise value are deemed to have indefinite lives and are not amortized, but are subject to, at a minimum, an annual impairment test. If the carrying value of any of the Company’s intangible assets exceeds its fair market value, an impairment loss would be recorded. The Company uses a discounted cash flow model to determine the fair market value of its reporting units.

      Following is a summary of the changes in the carrying amount of goodwill and franchise value for the nine months ended September 30, 2003:

2.     Inventories

      Inventories consisted of the following:

3.     Business Combinations

      During the nine months ended September 30, 2003 and 2002, the Company acquired 23 and 69 automobile dealership franchises, respectively. The Company’s financial statements include the results of operations of the acquired dealerships only from the date of acquisition.

4.     Stock-Based Compensation

      Full-time employees of the Company and its subsidiaries and affiliates are eligible to receive stock based compensation pursuant to the terms of the Company’s 2002 Equity Compensation Plan (the “Plan”). The Plan includes 2,100 shares available for future issuance of awards including; stock options, stock appreciation

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

rights, restricted stock, restricted stock units, performance shares and other awards to key employees, outside directors, consultants and advisors of the Company. As of September 30, 2003, 1,774 shares of common stock were available for grant under the Plan. In addition, 150 shares of common stock are available for the grant of options pursuant to the Company’s prior equity compensation plan.

      During 2003, the Company granted 326 shares of restricted common stock at no cost to certain employees. Shares are issued to the participants at the date of grant, entitling the participants to the right to vote their respective shares and receive dividends. However, the shares are subject to forfeiture and are non-transferable, which restrictions lapse ratably over a three-year period from the grant date. The fair value of these restricted shares at the date of grant is amortized to expense over the restriction period. During the nine months ended September 30, 2003, the Company has recorded deferred compensation expense related to restricted stock of $4,111, of which $3,327 remained unamortized at September 30, 2003.

      Pursuant to Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, the Company accounts for option grants using the intrinsic value method. Accordingly, no compensation expense has been recorded in the consolidated condensed financial statements with respect to option grants. The Company has adopted the disclosure only provisions of SFAS 123, “Accounting for Stock Based Compensation”, as amended by SFAS 148, “Accounting for Stock Based Compensation — Transition and Disclosure, an Amendment of FASB Statement No. 123”. Had the Company elected to recognize compensation expense for option grants using the fair value method, pro forma income available to common stockholders, basic earnings per common share and diluted earnings per common share would have been as follows:

      During 2003, the Company granted options to acquire 8 shares of common stock. The weighted average fair value of the option grants was calculated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: no dividend yield; expected volatility of 61%; risk free interest rate of 4% and expected lives of five years. The resulting weighted average fair value of the options granted during the nine months ended September 30, 2003 was $6.24.

5.     Earnings Per Share

      Basic earnings per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per common share is based on the weighted average number of common shares outstanding, adjusted for the dilutive effect of stock options, restricted stock, preferred stock and warrants. For the three and nine months ended September 30, 2003, 505 and 853 shares, respectively, issuable upon the exercise of outstanding options were excluded from the calculation of diluted earnings per common share

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

because the effect of such securities was antidilutive. A reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share is as follows:

6.     Supplemental Cash Flow Information

      The following table presents certain supplementary information to the consolidated condensed statements of cash flow:

7.     Long-Term Debt

      Long-term debt consisted of the following:

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      Available borrowing capacity under the Company’s credit facilities amounted to approximately $300,000 as of September 30, 2003.

      The Company is party to a credit agreement with DaimlerChrysler Services North America LLC and Toyota Motor Credit Corporation, dated December 22, 2000, as amended (the “U.S. Credit Agreement”), which provides for up to $700,000 in revolving loans to be used for acquisitions, working capital, letters of credit, the repurchase of common stock and general corporate purposes. The Company is also party to an additional $50,000 standby letter of credit facility provided by DaimlerChrysler Services North America LLC (the “Additional Facility”). Revolving loans mature on August 3, 2005. Loans under the U.S. Credit Agreement bear interest between U.S. LIBOR plus 2.00% and U.S. LIBOR plus 3.00%. The U.S. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by the Company’s domestic automotive dealership subsidiaries and contains a number of significant covenants that, among other things, restrict the ability of the Company to dispose of assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. The Company is also required to comply with specified ratios and tests defined in the U.S. Credit Agreement. The U.S. Credit Agreement also contains typical events of default, including change of control and non-payment of obligations. Availability under the revolving portion of the U.S. Credit Agreement is subject to a collateral-based borrowing limitation, which is determined based on certain of the Company’s allowable domestic tangible assets. Substantially all of the Company’s domestic assets are subject to security interests granted to lenders under the U.S. Credit Agreement. The U.S. Credit Agreement, the subordinated notes discussed below and borrowings under floor plan financing arrangements have cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness. As of September 30, 2003, outstanding letters of credit under the U.S. Credit Agreement amounted to $10,300 and outstanding letters of credit under the Additional Facility amounted to $50,000. As of September 30, 2003, the Company was in compliance with all financial covenants under the U.S. Credit Agreement.

      The Company is party to a credit facility with the Royal Bank of Scotland dated February 28, 2003 (the “U.K. Credit Facility”), which provides for up to £45,000 (approximately $75,000 as of September 30, 2003) in revolving loans to be used for acquisitions, working capital, and general corporate purposes. The U.K. Credit facility also provides for an additional seasonally adjusted overdraft line of credit up to a maximum of £10,000 (approximately $17,000 as of September 30, 2003). Loans under the U.K. Credit Facility bear interest between U.K. LIBOR plus 0.85% and U.K. LIBOR plus 1.25%. Borrowing capacity under the U.K. Credit Facility will be reduced by £2,000 every six months, with the first reduction occurring on January 1, 2004. The remaining £35,000 of revolving loans mature on January 31, 2006. The U.K. Credit Facility is fully and unconditionally guaranteed on a joint and several basis by the Company’s subsidiaries in the U.K. (the “U.K. Subsidiaries”), and contains a number of significant covenants that, among other things, restrict the ability of the U.K. Subsidiaries to pay dividends, dispose of assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. In addition, the U.K. Subsidiaries are required to comply with specified ratios and tests defined in the U.K. Credit Facility. The U.K. Credit Facility also contains typical events of default, including change of control and non-payment of obligations. Substantially all of the U.K. Subsidiaries’ assets are subject to security interests granted to lenders under the U.K. Credit Facility and the U.K. Credit Facility has cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of the U.K. Subsidiaries. As of September 30, 2003, outstanding borrowings under the U.K. Credit Facility amounted to approximately £34,000. As of September 30, 2003, the Company was in compliance with all financial covenants under the U.K. Credit Facility.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      In March 2002, the Company issued $300,000 aggregate principal amount of 9.625% Senior Subordinated Notes due 2012 (the “Notes”). Net proceeds from the offering were approximately $291,900, which was used to repay indebtedness outstanding under the U.S. Credit Agreement. The Notes are unsecured senior subordinated notes and rank behind all existing and future senior debt, including debt under the Company’s credit agreements and floor plan indebtedness. The Notes are guaranteed by substantially all of the Company’s domestic subsidiaries on a senior subordinated basis. The Company can redeem all or some of the Notes at its option beginning in 2007 at specified redemption prices. In addition, until 2005 the Company is allowed to redeem up to 35% of the Notes with the net cash proceeds from specified public equity offerings. Upon a change of control, each holder of Notes will be able to require the Company to repurchase all or some of the Notes at a redemption price of 101% of the principal amount of the Notes. The Notes also contain customary negative covenants and events of default.

8.     Interest Rate Swaps

      During January 2000, the Company entered into a swap agreement of five years duration pursuant to which a notional $200,000 of U.S. floating rate debt was exchanged for fixed rate debt. The fixed rate interest was 7.15%. In October 2002, the terms of this swap were amended pursuant to which the interest rate was reduced to 5.86% and the term of the agreement was extended for an additional three years. During March 2003, the Company entered into a swap agreement of five years duration pursuant to which a notional $350,000 of U.S. floating rate debt was exchanged for fixed rate debt. The fixed rate interest is 3.15%. These swaps have been designated as cash flow hedges of future interest payments of the Company’s LIBOR based U.S. floor plan borrowings.

9.     Subsequent Event

      On October 21, 2003, the Company announced that it would initiate a quarterly dividend of 10 cents per share. The dividend will be paid December 1, 2003 to shareholders of record on November 10, 2003.

10.     Condensed Consolidating Financial Information

      The following tables include condensed consolidating financial information as of September 30, 2003 and December 31, 2002 and for the three and nine month periods ended September 30, 2003 and 2002 for United Auto Group, Inc. (as the issuer), wholly-owned subsidiary guarantors, non-wholly owned guarantors, and non-guarantor subsidiaries (primarily representing foreign entities). The condensed consolidating financial information includes certain allocations of balance sheet, income statement and cash flow items, which are not necessarily indicative of the financial position, results of operations and cash flows of these entities on a stand-alone basis.

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UNITED AUTO GROUP, INC.