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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

For the transition period from             to            

Commission file number 333-87452-112

HBL, LLC
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (248) 648-2500

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 [  ] No [X]

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

The registrant meets the conditions set forth in General Instructions (H) (1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format specified therein.

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HBL, LLC

CONDENSED BALANCE SHEETS
(In Thousands)

See Notes to Condensed Financial Statements

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HBL, LLC

CONDENSED STATEMENTS OF INCOME
(In Thousands)
(Unaudited)

See Notes to Condensed Financial Statements

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HBL, LLC

CONDENSED STATEMENTS OF CASH FLOW
(In Thousands)
(Unaudited)

See Notes to Condensed Financial Statements

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HBL, LLC

CONDENSED STATEMENT OF MEMBERS’ DEFICIT
(In Thousands)
(Unaudited)

See Notes to Condensed Financial Statements

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HBL, LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands)
(Unaudited)

1. Interim Financial Statements

     Organization

     HBL, LLC (“HBL” or the “Company”), is engaged in the sale of new and used motor vehicles and related products and services, including vehicle service and parts, finance and insurance products and other aftermarket products. The Company operates dealerships under franchise agreements with Mercedes-Benz, Maybach, Audi and Porsche. In March 2003, the Company was awarded an Aston Martin franchise, which is expected to commence operations during 2003. In accordance with the individual franchise agreements, the dealerships are subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships, or the loss of a franchise agreement, could have a negative impact on the Company’s operating results.

     HBL, a Delaware limited liability company, is a majority-owned subsidiary of HBL Holdings, Inc. (“Holdings”), a Delaware corporation that is a wholly-owned subsidiary of Lantzsch-Andreas Enterprises, Inc. (“LAE”). LAE is a wholly-owned subsidiary of United Auto Group, Inc. (“UAG”). On December 31, 2001, Holdings sold a 10% member interest in HBL, LLC to Roger Penske, Jr. HBL is operated pursuant to an operating agreement dated as of December 31, 2001 (the “Operating Agreement”) between UAG and Roger Penske, Jr.

     Basis of Presentation

     The information presented as of June 30, 2003 and for the three and six month periods ended June 30, 2003 and 2002 is unaudited, but includes all adjustments (consisting only of normal and recurring adjustments) which the management of HBL 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 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.

     Goodwill

     Goodwill represents the push down of UAG’s excess of cost over the fair value of tangible and identified intangible assets acquired in connection with the purchase of the Company. Goodwill is not amortized, but is 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 goodwill.

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     Estimates

     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, intangible assets and certain reserves.

2. Inventories

     Inventories consisted of the following:

3. Supplemental Cash Flow Information

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

4. Long Term Debt

     Long-term debt represents the push down of UAG’s debt incurred when UAG acquired HBL, as well as borrowings from UAG to finance the Company’s facility upgrade. The interest expense included in these financial statements reflects UAG’s weighted average interest rate of 3.34% and 3.79% on this indebtedness during 2003 and 2002, respectively. UAG borrowed these funds under a credit agreement which is fully and unconditionally guaranteed on a joint and several basis by the majority of its domestic automotive dealership subsidiaries, including the Company. Substantially all of the Company’s assets that are not pledged as security under floor plan financing agreements, as well as the Company’s member interests, are subject to security interests granted to lenders under UAG’s credit agreement.

     UAG has issued $300,000 aggregate principal amount of 9.625% Senior Subordinated Notes due 2012 (the “Notes”). The Notes are unsecured senior subordinated notes and rank behind all of UAG’s existing and future senior debt, including debt under UAG’s credit agreements and floor plan indebtedness. The Notes are fully and unconditionally guaranteed on a joint and several basis by the majority of UAG’s domestic automotive dealership subsidiaries, including the Company.

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5. Related Party Transactions

     From time to time, the Company pays and/or receives fees from UAG and its affiliates for services rendered in the normal course of business. These transactions reflect the provider’s cost or an amount mutually agreed upon by both parties. It is the Company’s belief that the payments relating to these transactions are on terms at least as favorable as those which could be obtained from an unrelated third party. In addition, management fees of $225 and $450 were charged to HBL by UAG or its affiliates during the three and six months ended June 30, 2003 and 2002, respectively. During 2003 the Company received $4,080 from UAG in support of its facility upgrade, which is included in long-term debt in the accompanying condensed balance sheet as of June 30, 2003. Such amount bears interest based on UAG’s borrowing rate.

6. Disposition

     On February 22, 2002, HBL sold substantially all of the assets of a Land Rover dealership, including the franchise rights to the Land Rover product line, to an unaffiliated third party for $1,400 in cash. Total Land Rover revenues included in the six months ended June 30, 2002 were approximately $1,800. It is anticipated that the aggregate cash flows generated by the Land Rover franchise will be replaced through the expansion of the remaining franchises, and as a result, conditions for reporting the operation of the Land Rover franchise as discontinued operations were not met.

7. Commitments and Contingencies

     From time to time, the Company is involved in litigation relating to claims arising out of operations in the normal course of business. As of June 30, 2003, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the results of operations, financial condition or cash flows.

     The Company has begun a significant facility upgrade which is expected to be completed during 2003.

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

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors.

General

     HBL, LLC is engaged in the sale of new and used motor vehicles and related products and services, including vehicle service and parts, finance and insurance products and other aftermarket products. The Company operates dealerships under franchise agreements with Mercedes-Benz, Maybach, Audi and Porsche. In March 2003, the Company was awarded an Aston Martin franchise, which is expected to commence operations during 2003.

     HBL, a Delaware limited liability company, is a majority-owned subsidiary of HBL Holdings, Inc. (“Holdings”), a Delaware corporation that is a wholly-owned subsidiary of Lantzsch-Andreas Enterprises, Inc. (“LAE”). LAE is a wholly-owned subsidiary of United Auto Group, Inc. (“UAG” or “Parent”).

     New vehicle revenues include sales to retail customers and to leasing companies providing consumer automobile leasing. Used vehicle revenues include amounts received for used vehicles sold to retail customers, leasing companies providing consumer leasing and other dealers. We generate finance and insurance revenues from sales of extended service contracts, other insurance policies, and accessories, as well as from fees for placing finance and lease contracts. Service and parts revenues include fees paid for repair and maintenance service, the sale of replacement parts and body shop repairs.

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     Our gross profit tends to vary with the mix of revenues we derive from the sale of new vehicles, used vehicles, finance and insurance products, and service and parts services. Our gross profit generally varies across product lines, with new vehicle sales usually resulting in lower gross profit margins and our other products resulting in higher gross profit margins. Factors such as seasonality, weather, cyclicality and manufacturers’ advertising and incentives may impact the mix of our revenues, and therefore influence our gross profit margin.

     Our selling expenses consist of advertising and compensation for sales department personnel, including commissions and related bonuses. General and administrative expenses include compensation for administration, finance, legal and general management personnel, depreciation, amortization, rent, insurance, utilities and other outside services. A significant portion of our selling expenses are variable, and a significant portion of our general and administrative expenses are subject to our control, allowing us to adjust them over time to reflect economic trends.

     Floor plan interest expense relates to floor plan financing. Floor plan financing represents indebtedness incurred in connection with the acquisition of new and used vehicle inventories. Other interest expense represents interest on the debt due to UAG.

Results of Operations

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

     Revenues

     Total revenues increased $9.0 million, or 16.6%, from $54.2 million to $63.2 million.

     New vehicle retail revenues increased by $6.4 million, or 23.1%, from $27.3 million to $33.7 million. The increase in new vehicle retail revenues was due primarily to a 20.6% increase in unit sales versus the prior year. Fleet revenues decreased by $0.6 million or 30.5%, from $2.0 million to $1.4 million. Fleet revenues result from sales to a vehicle rental company from our Mercedes franchise.

     Used vehicle retail revenues increased by $1.2 million, or 8.3%, from $13.8 million to $15.0 million. The increase in used vehicle retail revenues was due primarily to a 10.7% increase in unit sales versus the prior year. Wholesale revenue decreased $0.3 or 7.3% from $3.7 million to $3.4 million.

     Finance and insurance revenues increased by $0.6 million, or 84.5%, from $0.8 million to $1.4 million. This increase was due principally to the increase in new and used retail vehicle volume and increased penetration of finance and insurance product sales.

     Service and parts revenues increased by $1.8 million, or 26.3%, from $6.6 million to $8.4 million. The increase is due primarily to increased utilization of our facilities subsequent to the sale of the Company’s Land Rover franchise.

     Gross Profit

     Gross profit increased by $1.9 million, or 24.4%, from $7.7 million to $9.6 million. The increase in gross profit is due primarily to the increase in new and used retail unit sales, the increase in finance and insurance revenues and the increase in service and parts revenues. Gross profit as a percentage of revenues increased from 14.2% to 15.2%. The increase in gross profit as a percentage of revenues is due primarily to an increase in the penetration of the higher margin finance and insurance product sales and increased higher-margin service and parts revenues as a percentage of total revenues.

     Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased by $1.3 million, or 24.9%, from $5.5 million to $6.8 million. Such expenses increased as a percentage of total revenue from 10.1% to 10.8%, and increased as a percentage of gross profit from 71.0% to 71.2%. The increase in selling, general and administrative expenses is due principally to increased variable expenses as a result of the increased new and used vehicle retail revenues, increased depreciation and amortization from increased capital expenditures and increased insurance costs.

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     Floor Plan Interest Expense

     Floor plan interest expense was consistent with the prior year.

     Other Interest Expense

     Other interest expense decreased by $0.2 million, or 22.3%, from $0.8 million to $0.6 million. The decrease is due primarily to a decrease in our weighted average interest rate during 2003, offset in part by an increase in long-term debt attributable to our facility upgrade program.

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

     Revenues

     Total revenues increased $4.3 million, or 4.2%, from $103.2 million to $107.5 million.

     New vehicle retail revenues increased by $3.5 million, or 6.5%, from $53.7 million to $57.2 million. The increase in new vehicle retail revenues was due primarily to a 6.1% increase in unit sales versus the prior year, offset in part by the sale of the Company’s Land Rover franchise in 2002, which resulted in an $0.8 million comparative decline in new vehicle retail revenues, coupled with a comparative decline in February 2003 sales volume which management believes was caused by severe weather. Fleet revenues decreased by $1.0 million or 29.4% from $3.3 million to $2.3 million. Fleet revenues result from sales to a vehicle rental company from our Mercedes franchise.

     Used vehicle retail revenues decreased by $0.9 million, or 3.6%, from $25.8 million to $24.9 million. The decline in used vehicle retail revenues was due primarily to a 0.4% decrease in unit sales versus the prior year, which management believes was caused in large part by severe weather in February 2003, coupled with the sale of the Company’s Land Rover franchise, which resulted in a $0.3 million comparative decline in used vehicle retail revenues. Wholesale revenue decreased $0.5 or 8.2% from $6.3 million to $5.8 million.

     Finance and insurance revenues increased by $0.6 million, or 34.5%, from $1.7 million to $2.3 million. This increase was due principally to the increase in new retail vehicle volume and increased penetration of finance and insurance product sales.

     Service and parts revenues increased by $2.6 million, or 21.5%, from $12.4 million to $15.0 million. The increase is due primarily to increased utilization of our facilities subsequent to the sale of the Company’s Land Rover franchise, offset in part by a decrease in volume in February 2003 which management believes was caused by severe weather and sale of the Company’s Land Rover franchise, which resulted in a $0.5 million comparative decline in service and parts revenues.

     Gross Profit

     Gross profit increased by $1.8 million, or 11.8%, from $15.0 million to $16.8 million. The increase in gross profit is due primarily to the increase in new retail unit sales, the increase in finance and insurance penetration and the increase in service and parts sales, offset in part by the decrease in used vehicle retail revenue. Gross profit as a percentage of revenues increased from 14.5% to 15.6%. The increase in gross profit as a percentage of revenues is due primarily to an increase in the relative proportion of service and parts sales to total revenues and the increased finance and insurance revenues.

     Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased by $1.9 million, or 17.8%, from $10.5 million to $12.4 million. Such expenses increased as a percentage of total revenue from 10.2% to 11.5%, and increased as a percentage of gross profit from 70.3% to 74.0%. The increase in selling, general and administrative expenses is due principally to increased variable expenses as a result of the increased new and used vehicle retail revenues, increased depreciation and amortization from increased capital expenditures, increased insurance costs and increased expenses related to February 2003’s severe weather.

     Floor Plan Interest Expense

     Floor plan interest expense was consistent with the prior year.

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     Other Interest Expense

     Other interest expense decreased by $0.3 million, or 20.8%, from $1.5 million to $1.2 million. The decrease is due primarily to a decrease in our weighted average interest rate during 2003, offset in part by an increase in long-term debt attributable to our facility upgrade program.

Liquidity and Capital Resources

     Our cash requirements are primarily for working capital, the improvement and expansion of existing facilities and the construction of new facilities. Historically, these cash requirements have been met through the issuance of debt instruments, including floor plan notes payable, borrowings from UAG and cash flow from operations. UAG has agreed to support any required capital needs of the Company in the event cash flow from operations is not sufficient to fund working capital requirements.

     We finance the majority of our new and a portion of our used vehicle inventory under revolving floor plan financing agreements with DaimlerChrysler Services North America LLC. We make monthly interest payments on the amount financed, but are generally not required to make loan principal repayments prior to the sale of the new and used vehicles we have financed. The floor plan agreements grant a security interest in substantially all of our assets. Interest rates on the floor plan arrangements are variable and increase or decrease based on movements in LIBOR. Outstanding borrowings under floor plan arrangements amounted to $23.7 million as of June 30, 2003.

     UAG is party to a $700.0 million credit agreement which is fully and unconditionally guaranteed on a joint and several basis by the majority of its domestic automotive dealership subsidiaries, including the Company. Loans under such agreement bear interest between U.S. LIBOR plus 2.00% and U.S. LIBOR plus 3.00%. Substantially all of our assets not pledged as security under our floor plan agreements as well as our member interests are subject to security interests granted to lenders under UAG’s credit agreement.

     UAG has issued $300,000 aggregate principal amount of 9.625% Senior Subordinated Notes due 2012 (the “Notes”). The Notes are unsecured senior subordinated notes and rank behind all of UAG’s existing and future senior debt, including debt under UAG’s credit agreements and floor plan indebtedness. The Notes are fully and unconditionally guaranteed on a joint and several basis by the majority of UAG’s domestic automotive dealership subsidiaries, including the Company.

     During the six months ended June 30, 2003, net cash provided by operating activities amounted to $3.6 million. Net cash used in investing activities during the six months ended June 30, 2003 totaled $4.8 million, which relates to capital expenditures incurred in connection with the renovation of our sales and service facilities. Net cash provided by financing activities during the six months ended June 30, 2003 was $1.3 million, and consisted of property and equipment funding from UAG, offset by distributions to the members.

     We believe that our cash flow provided by operating activities and our existing capital resources, including the liquidity provided by our floor plan financing arrangements and the support indicated by UAG, will be sufficient to fund our current operations and commitments for the next twelve months.

Commitments and contingencies

     The Company has begun a significant facility upgrade which is expected to be completed during 2003.

     From time to time, we are involved in litigation relating to claims arising out of operations in the normal course of business. As of June 30, 2003, we are not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the results of operations, financial condition or cash flows.

Distributions

We are required to make distributions to our members pursuant to our operating agreement.

Cyclicality

     Unit sales of motor vehicles, particularly new vehicles, historically have been cyclical, fluctuating with general economic cycles. During economic downturns, the automotive retailing industry tends to experience similar periods of decline and recession as the general economy. We believe that the industry is influenced by general economic conditions and particularly by consumer confidence, the level of personal discretionary spending, fuel prices, interest rates and credit availability.

Seasonality

     Our business is modestly seasonal overall. Our operations generally experience higher volumes of vehicle sales in the second and third quarters of each year due in part to consumer buying trends and the introduction of new vehicle models. Also, demand for cars and light trucks is generally lower during the winter months than in other seasons. Accordingly, we expect our revenues and

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profitability to be generally lower in our first and fourth quarters as compared to our second and third quarters. The service and parts business at our dealerships experience relatively modest seasonal fluctuations.

Effects of Inflation

     We believe that the relatively moderate rates of inflation over the last few years have not had a significant impact on revenues or profitability. We do not expect inflation to have any near-term material effects on the sale of our products and services. However, there can be no assurance that there will be no such effect in the future.

     We finance substantially all of our inventory through various revolving floor plan arrangements with interest rates that vary based on LIBOR. Such rates have historically increased during periods of increasing inflation. We do not believe that we would be placed at a competitive disadvantage should interest rates increase due to increased inflation since most other automotive dealerships have similar floating rate borrowing arrangements.

Forward Looking Statements

     This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally can be identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “intend,” “plan,” “estimate,” “predict,” “potential,” “forecast,” “continue” or variations of such terms, or the use of these terms in the negative. Forward-looking statements include statements regarding our current plans, forecasts, estimates, beliefs or expectations, including, without limitation, statements with respect to:

	•		our future financial performance;
	•		future acquisitions;
	•		future capital expenditures;
	•		our ability to respond to economic cycles;
	•		trends in the automotive retail industry and in the general economy;
	•		trends affecting our future financial condition or results of operations; and
	•		our business strategy.

     Forward-looking statements involve known and unknown risks and uncertainties and are not assurances of future performance. Actual results may differ materially from anticipated results due to a variety of factors, including the factors identified in the reports and our other periodic filings with the SEC. Important factors that could cause actual results to differ materially from our expectations include the following:

	•		automobile manufacturers exercise significant control over our operations and we depend on them in order to operate our business;
	•		because we depend on the success and popularity of the brands we sell, adverse conditions affecting one or more automobile manufacturers may negatively impact our revenues and profitability;
	•		we may not be able to satisfy our capital requirements for our dealership renovation projects or financing the purchase of our inventory;

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	•		our failure to meet a manufacturer’s consumer satisfaction requirements may adversely affect our ability to acquire new dealerships, our ability to obtain incentive payments from manufacturers and our profitability;
	•		our failure to meet a manufacturer’s consumer satisfaction requirements may adversely affect our ability to obtain incentive payments from manufacturers and our profitability;
	•		our business and the automotive retail industry in general are susceptible to adverse economic conditions, including changes in consumer confidence, fuel prices and credit availability;
	•		substantial competition in automotive sales and services may adversely affect our profitability;
	•		automotive retailing is a mature industry with limited growth potential in new vehicle sales;
	•		if we lose key personnel or are unable to attract additional qualified personnel, our business could be adversely affected;
	•		our business may be adversely affected by import product restrictions and foreign trade risks that may impair our ability to sell foreign vehicles profitably;
	•		our automobile dealerships are subject to substantial regulation which may adversely affect our profitability;
	•		if state dealer laws in the United States are repealed or weakened, our automotive dealerships will be more susceptible to termination, non-renewal or renegotiation of their franchise agreements;
	•		our automotive dealerships are subject to foreign, federal, state and local environmental regulations that may result in claims and liabilities;
	•		the substantial indebtedness of UAG may limit our ability to obtain financing for capital expenditures and;
	•		due to the nature of the automotive retailing business, we may be involved in legal proceedings that could have a material adverse effect on our business.

     We urge you to carefully consider these risk factors in evaluating all forward-looking statements regarding our business. Readers of this report are cautioned not to place undue reliance on the forward-looking statements contained in this report. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Except to the extent required by the federal securities laws and Securities and Exchange Commission rules and regulations, we have no intention or obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

Item 4. Controls and Procedures

     We maintain disclosure controls and procedures designed to ensure that both non-financial and financial information required to be disclosed in our periodic reports is recorded, processed, summarized and reported in a timely fashion. Based on the most recent evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective. In addition, we maintain internal controls designed to provide the Company with the information it requires for accounting and financial reporting purposes. There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1 — Legal Proceedings

     From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. As of June 30, 2003, we are not a party to any legal proceedings that, individually or in aggregate, are reasonably expected to have a material adverse effect on our results of operations, financial condition or cash flows.

Item 6 — Exhibits, Financial Statement Schedules and Reports on Form 8-K

     The Company did not file any current reports on Form 8-K during the quarter ended June 30, 2003.

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SIGNATURES

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

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EXHIBIT INDEX

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