<PAGE> 1
UNITED STATES
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 JUNE 30, 1996
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 333-3346
--------------------
RUSH ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1733016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8810 I.H. 10 East
San Antonio, Texas 78219
(Address of principal executive offices)
(Zip Code)
(210) 661-4511
(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 X No
----- -----
--------------------
Indicated below is the number of shares outstanding of the registrant's
only class of common stock, as of August 9, 1996.
Number of
Shares
Title of Class Outstanding
---------------------------- -----------
Common Stock, $.01 Par Value 6,643,730
<PAGE> 2
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996 (unaudited) and
December 31, 1995 (audited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income - For the Three Months and Six Months
Ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 14
</TABLE>
2
<PAGE> 3
PART I
Item 1. Financial Statements
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
ASSETS (UNAUDITED) (AUDITED)
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21,547 $ 2,149
Accounts receivable, net 14,564 16,411
Inventories 39,261 36,517
Prepaid expenses and other 321 266
--------------- ---------------
Total current assets 75,693 55,343
PROPERTY AND EQUIPMENT, net 20,753 17,560
OTHER ASSETS, net 3,259 3,176
--------------- ---------------
Total assets $ 99,705 $ 76,079
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable $ 34,602 $ 34,294
Current maturities of long-term debt 3,737 3,600
Advances outstanding under lines of credit 20 10
Trade accounts payable 7,019 7,591
Dividends payable 81 1,615
Accrued expenses 5,902 7,607
--------------- ---------------
Total current liabilities 51,361 54,717
DEFERRED INCOME TAXES 325 - 0 -
LONG-TERM DEBT, net of current maturities 13,994 13,677
SHAREHOLDERS' EQUITY:
Rush Enterprises, Inc., common stock, par value $.01 per
share; 25,000,000 shares authorized; 3,750,000 and
6,625,000 outstanding at December 31, 1995 and June 30,
1996, respectively. 66 38
Associated Acceptance, Inc., common stock, par value $1.00
per share; 750,000 shares authorized; 451,000 shares
outstanding at December 31, 1995 and June 30, 1996. - 0 - 6
Additional paid-in capital 33,819 729
Retained earnings 140 6,912
--------------- ---------------
Total shareholders' equity 34,025 7,685
--------------- ---------------
Total liabilities and shareholders' equity $ 99,705 $ 76,079
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share - unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
New and used truck sales $ 63,190 $ 47,955 $ 121,323 $ 95,471
Parts and service 16,174 13,720 31,951 26,070
Lease and rental 3,468 2,358 6,636 4,568
Finance and insurance 1,389 913 2,875 1,954
Other 388 394 698 599
--------- --------- --------- ---------
Total revenues 84,609 65,340 163,483 128,662
COST OF PRODUCTS SOLD 71,061 55,150 135,061 108,823
--------- --------- --------- ---------
GROSS PROFIT 13,548 10,190 28,422 19,839
SELLING, GENERAL AND ADMINISTRATIVE 9,882 7,610 21,784 15,082
DEPRECIATION AND AMORTIZATION 588 415 1,134 835
--------- --------- --------- ---------
OPERATING INCOME 3,078 2,165 5,504 3,922
INTEREST EXPENSE 1,072 637 2,046 1,229
MINORITY INTEREST - 0 - 74 - 0 - 113
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,006 1,454 3,458 2,580
PROVISION FOR INCOME TAXES 400 - 0 - 400 - 0 -
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 1,606 1,454 3,058 2,580
DISCONTINUED OPERATIONS:
Operating income (loss) - 0 - 1 - 0 - (224)
Gain on disposal - 0 - - 0 - - 0 - 1,785
--------- --------- --------- ---------
NET INCOME $ 1,606 $ 1,455 $ 3,058 $ 4,141
========= ========= ========= =========
UNAUDITED PRO FORMA DATA:
Income from continuing operations before income taxes $ 2,006 $ 1,454 $ 3,458 $ 2,580
Pro forma adjustments to reflect federal and state income taxes 762 552 1,314 980
--------- --------- --------- ---------
Proforma income from continuing operations after provision
for income taxes $ 1,244 $ 902 $ 2,144 $ 1,600
========= ========= ========= =========
Pro forma income from continuing operations per share $ .26 $ .21 $ .47 $ .37
========= ========= ========= =========
Weighted average shares outstanding used in the pro forma
income from continuing operations per share calculation 4,758 4,297 4,528 4,297
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 3,058 $ 2,580
Adjustments to reconcile net income to cash provided
by (used in) continuing operations
Depreciation and amortization 1,134 835
Provision for deferred income tax expense 325 - 0 -
Minority interest - 0 - 113
Change in receivables 1,847 (460)
Change in inventories (2,744) (3,168)
Change in other current assets (55) (70)
Change in accounts payable (572) 595
Change in accrued liabilities (1,701) (2,437)
----------- -----------
Net cash provided by (used in) continuing operations 1,292 (2,012)
Net cash provided by (used in) discontinued operations - 0 - 785
----------- -----------
Net cash provided by (used in) operating activities 1,292 (1,227)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (4,601) (1,730)
Proceeds from the sale of property and equipment 554 851
Proceeds from the sale of discontinued operations - 0 - 3,601
Change in other assets (258) (8)
----------- -----------
Net cash provided by (used in) investing activities (4,305) 2,714
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock 31,303 - 0 -
Proceeds from notes payable 2,643 2,939
Principal payments on notes payable (2,278) (1,596)
Draws (payments) on floor plan financing, net 308 1,354
Draws (payments) on line of credit, net (10) (840)
Dividends paid (9,555) (2,570)
----------- -----------
Net cash provided by (used in) financing activities 22,411 (713)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 19,398 774
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 2,149 851
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 21,547 $ 1,625
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during year for interest 2,034 1,401
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
5
<PAGE> 6
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The interim consolidated financial statements included herein have been
prepared by Rush Enterprises, Inc. and subsidiaries (collectively referred to
as the "Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). All adjustments have been made to
the accompanying interim consolidated financial statements which are, in the
opinion of the Company's management, necessary for a fair presentation of the
Company's operating results. All adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. It is
recommended that these interim consolidated financial statements be read in
conjunction with the combined financial statements and the notes thereto
included in the Company's registration statement on Form S-1. Certain prior
period amounts have been reclassified for comparative purposes.
2 - CORPORATE REORGANIZATION AND COMMON STOCK OFFERING
The Company successfully completed an initial public offering (the
Offering) of 2,875,000 common shares on June 12, 1996. As part of this
transaction, the Company terminated its S corporation federal tax election and
was subject to federal and certain state income taxes from that date forward.
On June 12, 1996 the Company paid the S Corporation shareholder $6.5 million
representing the undistributed accumulated earnings of the S Corporation prior
to June 12, 1996.
Following the Offering there were 6,625,000 common shares outstanding,
including 3,750,000 owned by the shareholder of the predecessor S Corporation.
As part of the reorganization, the Company acquired as a wholly-owned
subsidiary a managing general agent (the "MGA") to manage all of the operations
of Associated Acceptance, Inc. ("AA"). The MGA is responsible for funding the
operations of AA, directing the use of AA's assets, and incurring liabilities
on AA's behalf in exchange for the MGA receiving any and all net income of AA.
W. Marvin Rush, the sole shareholder of AA, is prohibited from the sale or
transfer of the capital stock of AA under the MGA agreement, except as
designated by the Company. Therefore, the financial position and operations of
AA have been included as part of the Company's consolidated financial position
and results of operations.
3 - DEFERRED FEDERAL INCOME TAXES
Effective with the corporate reorganization on June 12, 1996 (see Note 2),
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in a company's financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the differences between the financial statement
and tax bases of assets and liabilities using currently enacted tax rates in
effect for the years in which the differences are expected to reverse.
As a result of adopting SFAS 109, the Company reported Deferred Income Tax
Expense of $325,000 in the quarter ended June 30, 1996. The tax effects of the
temporary differences that gave rise to this expense are summarized below:
<TABLE>
<CAPTION>
June 30, 1996
(in thousands)
--------------
<S> <C>
Deferred tax assets - book expense
provisions in excess of tax $596
Deferred tax liabilities - tax
depreciation and amortization
in excess of book 921
----
Net deferred tax liability $325
</TABLE>
The Company did not record any valuation allowances against the deferred
income tax assets at June 30, 1996.
6
<PAGE> 7
4 - PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Income From Continuing Operations and Income From Continuing
Operations Per Share (Unaudited)
Pro forma income from continuing operations and pro forma income from
continuing operations per share for the three and six months ended June 30,
1995 and 1996, have been determined assuming that the Company had been taxed as
a C corporation for federal and certain state income tax purposes for such
periods.
Pro forma income from continuing operations per share had been computed
using the weighted average number of common shares outstanding of Rush
Enterprises, Inc. Weighted average common shares for all periods presented
prior to the Offering have been increased by 547,400 shares to reflect the
number of shares that would have to be sold at the offering price per share
which would be necessary to repay an approximate $6,000,000 distribution of
undistributed S corporation earnings.
The pro forma effect of the retirement of debt of approximately $900,000
on pro forma income from continuing operations per share would be immaterial.
Thus, the Company has not presented supplemental pro forma income from
continuing operations per share data.
5 - PUBLIC OFFERING PROCEEDS
The following shows the disposition of cash received from the Company's
public offering.
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Cash and short-term investments $24,124
Payment of undistributed subchapter S
corporation earnings to subchapter S
shareholder 6,500
Payment of public offering expenses 781
Payoffs of long-term debt 680
-------
Offering proceeds - net of underwriting costs $32,085
</TABLE>
The Company indicated in its registration statement on Form S-1 that it
intended to use a portion of the Offering proceeds to pay off approximately
$4.4 million of debt. Following the Offering, the Company was able to
renegotiate lower interest rates on $3.5 million of debt, and thus did not pay
off the entire intended amount. Cash reserves will be invested until required
for general corporate purposes, including working capital, funds for opening of
additional locations and strategic acquisitions.
7
<PAGE> 8
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following comments should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
quarterly report on Form 10-Q.
GENERAL
Rush Enterprises operates a regional network of truck centers that provide
an integrated one-stop source for the trucking needs of its customers,
including retail sales of new Peterbilt and used heavy-duty trucks; parts,
service and body shop facilities; and a wide array of financial services,
including the financing of new and used truck purchases, insurance products and
truck leasing and rentals.
In February 1994, the Company purchased the assets of Engs Motor Truck
Company ("Engs"), which consisted of three full-service Peterbilt dealerships
located in Pico Rivera, Fontana and Ventura, California, and a parts store
located in Sun Valley, California. As part of the Company's acquisition
strategy, the Company closed the Ventura facility in August 1994, consolidating
its operations into the remaining facilities.
In March 1995, the Company sold an automobile dealership in San Antonio,
Texas. The financial results of this business are presented in the financial
statements for the six months ended June 30, 1995, as "discontinued
operations".
In December 1995, the Company acquired the assets of Kerr Consolidated,
Inc., which consisted of a full-service Peterbilt dealership and stand-alone
leasing facility in Oklahoma City, Oklahoma, and a full-service Peterbilt
dealership in Tulsa, Oklahoma.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's historical
results of operations for the three months and six months ended June 30, 1995
and 1996, without giving effect to pro forma results of operations for the
Company's Oklahoma and California operations acquired in December 1995 and
February 1994, respectively, except as expressly indicated.
The following table sets forth for the periods indicated certain financial data
as a percentage of total revenues:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
New and used truck sales . . . . . . . . . . . . . . . . . . . 73.4% 74.7% 74.2% 74.2%
Parts and service . . . . . . . . . . . . .. . . . . . . . . . 21.0 19.1 20.3 19.5
Lease and rental. . . . . . . . . . . . . .. . . . . . . . . . 3.6 4.1 3.6 4.1
Finance and insurance . . . . . . . . . . .. . . . . . . . . . 1.4 1.6 1.5 1.8
Other . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .6 .5 .4 .4
----- ------ ------ ------
Total revenues . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0
Cost of products sold . . . . . . . . . . .. . . . . . . . . . 84.4 84.0 84.6 82.6
----- ------ ------ ------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . 15.6 16.0 15.4 17.4
Selling, general and administrative expenses 11.6 11.7 11.7 13.3
Depreciation and amortization . . . . . . .. . . . . . . . . . .6 .7 .7 .7
----- ------ ------ ------
Operating income . . . . . . . . . . . . . . . . . . . . . . . 3.4 3.6 3.0 3.4
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 1.0 1.2 .9 1.3
Minority interest . . . . . . . . . . . . . . . . . . . . . . .2 -.0- .1 -.0-
----- ------ ------ ------
Income from continuing operations . . . . .. . . . . . . . . . 2.2% 2.4% 2.0% 2.1%
</TABLE>
8
<PAGE> 9
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Revenues
Revenues increased by approximately $19.3 million, or 29.5%, from $65.3
million to $84.6 million from the second quarter of 1995 to the second quarter
of 1996. This increase was principally a result of the acquisition of the
Company's Oklahoma operations in December 1995. In addition, slight gains were
achieved in parts and service, lease and rental, and finance and insurance
operations at the Company's other locations.
Sales of new and used trucks increased by approximately $15.2 million, or
31.8%, from $48.0 million to $63.2 million from the second quarter of 1995 to
the second quarter of 1996. The acquisition of the Oklahoma operations
contributed $9.0 million of new and used truck sales, which supplemented an
increase in new and used truck sales of $6.2 million at the Company's other
operations. Unit sales of new and used trucks increased by 16.9% and decreased
by 8.1%, respectively, from the second quarter of 1995 to the second quarter of
1996, while new truck average revenue per unit increased by 12.6% and used
truck average revenue per unit decreased by 40.5%. All but 1.9% of the growth
in new truck unit sales was attributable to the acquisition of the Company's
Oklahoma operations. Incremental used truck sales from the Oklahoma
acquisition partially offset sales declines at the Company's San Antonio and
Houston, Texas operations. New truck prices increased at a rate slightly
higher than inflation, and used truck prices decreased due to an oversupply of
used trucks in the market.
Parts and service sales increased by approximately $2.5 million, or 17.9%,
from $13.7 million to $16.2 million primarily as a result of the inclusion of
the Oklahoma operations. The remaining increase was due to the addition of 18
service and body shop bays during 1995 at the Company's facilities in San
Antonio, Texas (10), Lufkin, Texas (6) and Fontana, California (2).
Lease and rental revenues increased by approximately $1.1 million, or
47.1%, from $2.4 million to $3.5 million, primarily as a result of the
acquisition of the Company's Oklahoma lease and rental operations in
December 1995.
Finance and insurance revenues increased by approximately $476,000, or
52.1%, from $913,000 to $1.4 million from the second quarter of 1995 to the
second quarter of 1996. The majority of the increase resulted from lower
borrowing costs, with the balance of the increase resulting from the
acquisition of the Company's Oklahoma operations in December 1995. Finance and
insurance revenues have limited direct costs and, therefore, contribute a
disproportionate share of operating profits.
Gross Profit
Gross profit increased by approximately $3.4 million, or 33.0%, from $10.2
million to $13.5 million from the second quarter of 1995 to the second quarter
of 1996, primarily due to the increase in revenues from the Oklahoma
operations. Gross profit as a percentage of sales increased from 15.6% to
16.0% from the second quarter of 1995 to the second quarter of 1996. The net
increase in gross margins resulted from lower gross margins on new truck sales
being more than offset by higher gross margins from parts, service and body
shop operations.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by approximately
$2.3 million, from $7.6 million to $9.9 million, or 29.9%, from the second
quarter of 1995 to the second quarter of 1996. The majority of the increase
resulted from the acquisition of the Company's Oklahoma operations in December
1995. Most of the remaining increase was due to increased truck sales
commissions. Selling, general and administrative expenses as a percent of
revenue were 11.7% for the second quarter of 1996 and 11.6% for the same
quarter of 1995.
Interest Expense
Interest expense increased by approximately $435,000 from $637,000 to $1.1
million, or 68.3%, from the second quarter of 1995 to the second quarter of
1996, primarily as the result of increased levels of floor plan financing
associated with higher inventory levels at all locations and additional
inventories associated with the inclusion of the Company's Oklahoma operations
acquired in December 1995, and to a lesser extent from increases in interest
rates on the Company's variable-rate borrowings and higher average outstanding
debt balances.
9
<PAGE> 10
Income from Continuing Operations
Income from continuing operations increased by $552,000, or 38.0% from
$1.5 million to $2.0 million from the second quarter of 1995 to the second
quarter of 1996, as a result of the factors described above.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Revenues
Revenues increased by approximately $34.8 million, or 27.1%, from $128.7
million to $163.5 million from the first six months of 1995 to the first six
months of 1996. This increase was principally a result of the acquisition of
the Company's Oklahoma operations in December 1995. In addition, slight gains
were achieved in parts and service, lease and rental, and finance and insurance
operations at the Company's other locations.
Sales of new and used trucks increased by approximately $25.9 million, or
27.1%, from $95.5 million to $121.3 million from the first six months of 1995
to the first six months of 1996. The acquisition of the Oklahoma operations
contributed $20.4 million of new and used truck sales, which supplemented an
increase in new and used truck sales of $5.5 million at the Company's other
operations. Unit sales of new and used trucks increased by 15.8% and 14.0%,
respectively, from the first six months of 1995 to the first six months of
1996, while new and used truck average revenue per unit increased by 9.0% and
13.9%, respectively. All of the growth in new and used truck unit sales was
attributable to the acquisition of the Company's Oklahoma operations. New
truck prices increased at a rate slightly higher than inflation, and used truck
prices decreased due to an oversupply of used trucks in the market.
Parts and service sales increased by approximately $5.9 million, or 22.6%,
from $26.1 million to $32.0 million primarily as a result of the inclusion of
the Oklahoma operations. The remaining increase was due to the addition of 18
service and body shop bays during 1995 at the Company's facilities in San
Antonio, Texas (10), Lufkin, Texas (6) and Fontana, California (2).
Lease and rental revenues increased by approximately $2.1 million, or
45.3%, from $4.6 million to $6.6 million, primarily as the result of the
acquisition of the Company's Oklahoma lease and rental operations in December
1995.
Finance and insurance revenues increased by approximately $921,000, or
47.1%, from $2.0 million to $2.9 million from the first six months of 1995 to
the first six months of 1996. The majority of the increase resulted from lower
borrowing costs, with the balance of the increase resulting from the
acquisition of the Company's Oklahoma operations in December 1995. Finance and
insurance revenues have limited direct costs and, therefore, contribute a
disproportionate share of operating profits.
Gross Profit
Gross profit increased by approximately $8.6 million, or 43.3%, from $19.8
million to $28.4 million from the first six months of 1995 to the first six
months of 1996, primarily due to the increase in revenues from the Oklahoma
operations. Gross profit as a percentage of sales increased from 15.4% to
17.4% from the first six months of 1995 to the first six months of 1996. The
net increase in gross margins resulted from lower gross margins on new truck
sales being offset by higher gross margins from parts, service and body shop
operations.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased by approximately
$6.7 million, from $15.1 million to $21.8 million, or 44.4%, from the first six
months of 1995 to the first six months of 1996. The majority of the increase
resulted from the acquisition of the Company's Oklahoma operations in December
1995. Most of the remaining increase was due to increased truck sales
commissions. Selling, general and administrative expenses as a percent of
revenue were 13.3% for the first half of 1996 and 11.7% for the same period of
1995.
10
<PAGE> 11
Interest Expense
Interest expense increased by approximately $817,000 from $1.2 million to
$2.0 million, or 66.5%, from the first six months of 1995 to the first six
months of 1996, primarily as the result of increased levels of floor plan
financing associated with higher inventory levels at all locations and
additional inventories associated with the inclusion of the Company's Oklahoma
operations acquired in December 1995, and to a lesser extent from increases in
interest rates on the Company's variable-rate borrowings and higher average
outstanding debt balances.
Income from Continuing Operations
Income from continuing operations increased by $878,000, or 34.0% from
$2.6 million to $3.5 million from the first six months of 1995 to the first six
months of 1996, as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital,
including inventory requirements, expansion of existing facilities and
acquisitions of new facilities. These short-term cash needs have historically
been financed with retention of profits and borrowings under credit facilities
available to the Company.
In June 1996, the Company completed the initial public offering of
2,875,000 shares of common stock and received net proceeds of approximately
$32.1 million. As a result of the initial public offering, working capital
levels have generally increased. At June 30, 1996, the Company had working
capital of approximately $24.3 million, including $21.5 million in cash and
cash equivalents, $14.6 million in accounts receivable and $39.3 million in
inventories, less $12.9 million of accounts payable and accrued expenses, $3.7
million of current maturities on long-term debt and $4.6 million outstanding
under floor plan financing. The aggregate maximum borrowing limits under
working capital lines of credit with various commercial banks are approximately
$6.0 million. The Company's floor plan agreements with its primary lender
limit the aggregate amount of borrowings based on the number of new and used
trucks. As of June 30, 1996, the Company's floor plan arrangements permit the
financing of up to 692 new trucks and 283 used trucks.
For the first six months of 1995, operating activities resulted in net
cash used in operations of approximately $1.2 million. The use of cash in
operations was primarily due to higher levels of inventories.
For the first six months of 1996, operating activities provided $1.3
million of cash. Net income of $3.1 million, a decrease in accounts receivable
of $1.8 million and provisions for depreciation, amortization, and deferred
taxes totaling $1.5 million more than offset increases in inventories of $2.7
million and accounts payable and accrued liabilities of $2.7 million.
During the first six months of 1995, the Company generated $2.7 million of
net cash in investing activities, as capital expenditures of $1.7 million were
more than offset by the proceeds from the sale of discontinued operations of
$3.6 million.
During the first six months of 1996, the Company used $4.3 million for
investing activities, primarily acquisitions of real estate related to the
Oklahoma operations.
Net cash used in financing activities in the first half of 1995
amounted to $713,000. Proceeds from increased notes payable and additional
floor plan financing were more than offset by higher dividends to the S
corporation shareholder.
For the first half of 1996, net cash provided by financing activities
amounted to $22.4 million. Net proceeds from the Offering of $31.3 million,
after direct expenses of the Offering of $781,000, were partially offset by
an increase of $9.6 million in dividends paid to the S corporation shareholder.
11
<PAGE> 12
During 1995, the Company arranged financing for approximately 25% of its
total new and used truck sales, with approximately 65% related to new truck
sales and the remaining 35% of financing related to used truck sales. The
Company's new and used truck financing is typically provided through Associates
and PACCAR Financial. The Company financed approximately $53.2 million of new
and used truck purchases in 1995. The Company's contracts with Associates and
PACCAR Financial provide for payment to the Company of all finance charges in
excess of a negotiated discount rate within 30 days of the date of financing,
with such payments subject to offsets resulting from the early pay-off, or
defaults under, of installment contracts previously sold to Associates and
PACCAR Financial by the Company. The Company's agreements with Associates and
PACCAR Financial limit the aggregate liability of the Company for defaults
under the installment contracts sold to Associates and PACCAR Financial to
$400,000 and $200,000 per year, respectively.
Substantially all of the Company's truck purchases from PACCAR are made on
terms requiring payment within 15 days or less form the date of shipment of the
trucks from the factory. The Company finances all, or substantially all, of
the purchase price of its new truck inventory, and 75% of the loan value of its
used truck inventory, under a floor plan arrangement with GMAC under which GMAC
pays PACCAR directly with respect to new trucks. The company makes monthly
interest payments on the amount financed but is not required to commence loan
principal repayments prior to sale of new vehicles to GMAC for a period of 12
months and for used vehicles for a period of three months. At June 30, 1996,
the Company had $34.6 million outstanding under its floor plan financing
arrangement with GMAC. GMAC permits the Company to earn, for up to one-half of
the amount borrowed under its floor plan financing arrangement with GMAC,
interest at the prime rate on overnight funds deposited by the Company with
GMAC. Following the Offering GMAC increased the amount of funds that the
Company can earn interest at the prime rate to include one-half of the
outstanding floor plan financing, real estate financing and the line of credit
extended by GMAC.
Backlogs
The Company enters firm orders into its backlog at the time the order is
received. Customer orders are typically filed in 75 to 90 days and customers
normally place orders on that basis. However, certain customers, including
fleets and governments, typically place orders six months to one year in
advance of their desired delivery date. The Company in the past has typically
allowed customers to cancel orders at any time prior to delivery, and the
Company's level of cancellations is affected by general economic conditions,
economic recessions and customer business cycles. As a percentage of orders,
cancellations historically have ranged from 5% to 12% of annual order volume.
The Company's backlogs as of June 30, 1995 and June 30, 1996, were
approximately $90.0 million and $92.0 million, respectively. Backlogs increased
principally due to higher average unit prices in 1996.
Seasonality
The Company's business is moderately seasonal. Seasonal effects on new
truck sales related to the seasonal purchasing patterns of any single customer
type are mitigated by the Company's diverse customer base, including small and
large fleets, governments, corporations and owner operators. However, truck,
parts and service operations historically have experienced higher volumes of
sales in the second and third quarters. The Company has historically received
benefits from volume purchases and meeting vendor sales targets in the form of
cash rebates, which are typically recognized when received. Approximately 50%
of such rebates are typically received in the fourth quarter, resulting in a
seasonal increase in gross profit.
Cyclicality
The Company's business, as well as the entire retail heavy-duty truck
industry, is dependent on a number of factors relating to general economic
conditions, including fuel prices, interest rate fluctuations, economic
recessions and customer business cycles. In addition, unit sales of new trucks
have historically been subject to substantial cyclical variation based on such
general economic conditions. Although the Company believes that its geographic
expansion and diversification into truck-related services, including financial
services, leasing, rentals and service and parts, will reduce the overall
impact to the Company resulting from general economic conditions affecting
heavy-duty truck sales, the Company's operations may be materially and
adversely affected by any continuation or renewal of general downward economic
pressures or adverse cyclical trends.
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 revenue or
profitability. The company does not expect inflation to have any near-term
material effect on the sales of its products, although there can be no
assurance that such an effect will not occur in the future.
12
<PAGE> 13
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) Exhibits
Exhibit
Number
-------
11.1 Computation of pro forma earnings per share
27.1 Financial data schedule
b) Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
RUSH ENTERPRISES, INC.
Date: August 14, 1996 By: /s/ W. MARVIN RUSH
---------------------------------
Name: W. Marvin Rush
Title: Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: August 14, 1996 By: /s/ D. JEFFERY MICHELL
---------------------------------
Name: D. Jeffery Michell
Title: Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
11.1 Computation of pro forma earnings per share
27.1 Financial Data Schedule
<PAGE> 1
Exhibit 11.1
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME AND PRO FORMA EARNINGS PER SHARE
(in thousands, except per share amounts - unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
1996 1995 1996 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE CALCULATION
Income from continuing operations $ 1,606 $ 1,454 $ 3,058 $ 2,580
Income from discontinued operations - 0 - 1 - 0 - 1,561
--------- --------- --------- ---------
Net income $ 1,606 $ 1,455 $ 3,058 $ 4,141
========= ========= ========= =========
Weighted average number of common shares outstanding 4,319 3,750 4,035 3,750
Weighted average number of common share equivalents applicable
to stock options - 0 - - 0 - - 0 - - 0 -
--------- --------- --------- ---------
Common shares and common share equivalents 4,319 3,750 4,035 3,750
========= ========= ========= =========
Earnings per share - Primary
From continuing operations $ .37 $ .39 $ .76 $ .69
From discontinued operations - 0 - - 0 - - 0 - .41
--------- --------- --------- ---------
Net income $ .37 $ .39 $ .76 $ 1.10
========= ========= ========= =========
FULLY-DILUTED EARNINGS PER SHARE CALCULATION
Income from continuing operations $ 1,606 $ 1,454 $ 3,058 $ 2,580
Income from discontinued operations - 0 - 1 - 0 - 1,561
--------- --------- --------- ---------
Net income $ 1,606 $ 1,455 $ 3,058 $ 4,141
========= ========= ========= =========
Weighted average number of common shares outstanding 4,319 3,750 4,035 3,750
Weighted average number of common share equivalents applicable
to stock options - 0 - - 0 - - 0 - - 0 -
--------- --------- --------- ---------
Common shares and common share equivalents 4,319 3,750 4,035 3,750
========= ========= ========= =========
Earnings per share - Fully diluted (1)
From continuing operations $ .37 $ .39 $ .76 $ .69
From discontinued operations - 0 - - 0 - - 0 - .41
--------- --------- --------- ---------
Net income $ .37 $ .39 $ .76 $ 1.10
========= ========= ========= =========
(1) This calculation is submitted in accordance with item 601(b)11 of regulation S-K although
it is not required by APB Opinion No. 15 because it results in dilution of less than 3%.
PRO FORMA EARNINGS PER SHARE
Pro forma income from continuing operations after provision
for income taxes $ 1,244 $ 902 $ 2,144 $ 1,600
Weighted average shares of common stock outstanding 4,319 3,750 4,035 3,750
Pro forma shares issued at offering price to pay undistributed
S corporation earnings 439 547 493 547
--------- --------- --------- ---------
Pro forma weighted average shares outstanding 4,758 4,297 4,528 4,297
--------- --------- --------- ---------
Pro forma income from continuing operations per share $ .26 $ .21 $ .47 $ .37
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,547
<SECURITIES> 0
<RECEIVABLES> 14,564
<ALLOWANCES> 0
<INVENTORY> 39,261
<CURRENT-ASSETS> 75,693
<PP&E> 20,753
<DEPRECIATION> 0
<TOTAL-ASSETS> 99,705
<CURRENT-LIABILITIES> 51,361
<BONDS> 13,994
<COMMON> 66
0
0
<OTHER-SE> 33,959
<TOTAL-LIABILITY-AND-EQUITY> 99,705
<SALES> 0
<TOTAL-REVENUES> 163,483
<CGS> 0
<TOTAL-COSTS> 135,061
<OTHER-EXPENSES> 22,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,046
<INCOME-PRETAX> 3,458
<INCOME-TAX> 400
<INCOME-CONTINUING> 3,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,058
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
