<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, 1997
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 0-20797
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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 8, 1997.
Number of
Shares
Title of Class Outstanding
-------------- -----------
Common Stock, $.01 Par Value 6,643,730
<PAGE> 2
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1997 (unaudited) and
December 31, 1996 (audited) . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income - For the Three and Six Months
Ended June 30, 1997 and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 1997 and 1996 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
ASSETS (UNAUDITED) (AUDITED)
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 15,142 $ 21,507
Accounts receivable, net 18,169 23,064
Inventories 34,551 36,688
Prepaid expenses and other 579 1,503
-------- --------
Total current assets 68,441 82,762
PROPERTY AND EQUIPMENT, net 25,219 23,222
OTHER ASSETS, net 8,934 3,233
-------- --------
Total assets $102,594 $109,217
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable $ 32,809 $ 42,228
Current maturities of long-term debt 7,471 2,115
Advances outstanding under lines of credit 20 20
Trade accounts payable 6,053 5,157
Accrued expenses 4,658 8,566
-------- --------
Total current liabilities 51,011 58,086
DEFERRED INCOME TAX LIABILITY, net 1,122 1,027
LONG-TERM DEBT, net of current maturities 11,987 13,412
SHAREHOLDERS' EQUITY
Rush Enterprises, Inc., common stock, par value $.01 per share; 66 66
25,000,000 shares authorized; 6,643,730 outstanding at June 30, 1997 and
December 31, 1996
Additional paid-in-capital 33,342 33,342
Retained earnings 5,066 3,284
-------- --------
Total shareholders' equity 38,474 36,692
-------- --------
Total liabilities and shareholders' equity $102,594 $109,217
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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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,
-------------------- ------------------------
1997 1996 1997 1996
--------- -------- ------------ ----------
<S> <C> <C> <C> <C>
REVENUES:
New and used truck sales $71,831 $ 63,190 $133,636 $121,323
Parts and service 19,051 16,174 35,346 31,951
Lease and rental 3,448 3,468 6,656 6,636
Finance and insurance 1,056 1,389 2,081 2,875
Other 965 386 388 698
------- -------- -------- --------
Total revenues 95,772 84,609 178,684 163,483
COST OF PRODUCTS SOLD 81,301 71,061 151,044 135,061
------- -------- -------- --------
GROSS PROFIT 14,471 13,548 27,640 28,422
SELLING, GENERAL AND ADMINISTRATIVE 11,716 9,882 22,500 21,784
DEPRECIATION AND AMORTIZATION 715 588 1,343 1,134
------- -------- -------- --------
OPERATING INCOME 2,040 3,078 3,797 5,504
INTEREST EXPENSE 433 1,072 923 2,046
------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,607 2,006 2,874 3,458
PROVISION FOR INCOME TAXES 610 400 1,092 400
------- -------- -------- --------
NET INCOME $ 997 $ 1,606 $ 1,782 $ 3,058
======= ======== ======== ========
EARNINGS PER SHARE
Primary $ 0.15 $ 0.27
======= ========
Fully Diluted $ 0.15 $ 0.27
======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 6,644 6,644
======= ========
Fully Diluted 6,644 6,644
======= ========
UNAUDITED PRO FORMA DATA:
Income before income taxes
$ 2,006 $ 3,458
Pro forma adjustments to reflect federal and
state income taxes 762 1,314
------- -------
Pro forma income after provision for income
taxes $ 1,244 2,144
======= =======
Pro forma income per share $ 0.26 $ 0.47
======= =======
Weighted average shares outstanding used in
the pro forma net income per share calculation 4,758 4,528
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,782 $ 3,058
Adjustments to reconcile net income to cash provided
by (used in) continuing operations
Depreciation and amortization 1,343 1,134
Gain on sale of property and equipment (84) --
Provision for deferred income tax expense 95 325
Change in accounts receivable 4,895 1,847
Change in inventories 4,277 (2,744)
Change in prepaid expenses and other current
assets 924 (55)
Change in accounts payable 896 (572)
Change in accrued expenses (3,987) (1,701)
-------- --------
Net cash provided by operating activities 10,141 1,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (4,292) (4,601)
Proceeds from the sale of property and equipment 1,297 554
Acquisitions of dealerships and leasing operations (7,915) --
Changes in other assets (108) (258)
-------- --------
Net cash used in investing activities (11,018) (4,305)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock -- 31,303
Proceeds from notes payable 5,998 2,643
Principal payments on notes payable (2,067) (2,278)
Draws (payments) on floor plan financing, net (9,419) 308
Draws on line of credit, net -- (10)
Dividends paid -- (9,555)
-------- --------
Net cash (used in) provided by financing activities (5,488) 22,411
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (6,365) 19,398
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 21,507 2,149
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 15,142 $ 21,547
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during year for interest $ 945 $ 2,034
======== ========
Cash paid during year for taxes $ 650 $ -
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
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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 consolidated financial statements and the notes thereto
included in the Company's form 10-K. 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 approximately
$6,000,000 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 a managing general
agent (the "MGA"), as a wholly-owned subsidiary, 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 - PRO FORMA INFORMATION (UNAUDITED)
Pro forma income from continuing operations and pro forma income per
share for the three and six month periods ended June 30, 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 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
have been sold at the offering price per share to repay an approximate
$6,000,000 distribution of undistributed S corporation earnings.
4 - COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to finance contracts for the notes
sold to such finance companies related to the sale of trucks. The Company's
recourse liability related to sold finance contracts is limited to 15 to 25
percent of the outstanding amount of each note sold to the finance company with
the aggregate recourse liability for 1997 being limited to $600,000. The
Company provides an allowance for repossession losses and early repayment
penalties.
6
<PAGE> 7
The Company is involved in various claims and legal actions arising in
the ordinary course of business. The Company believes it is unlikely that the
final outcome of any of the claims or proceedings to which the Company is a
party would have a material adverse effect on the Company's financial position
or results of operations, however, due to the inherent uncertainty of
litigation, there can be no assurance that the resolution of any particular
claim or proceeding would not have a material adverse effect on the Company's
results of operations for the fiscal period in which such resolution occurred.
The Company has consulting agreements with individuals for an
aggregate monthly payment of $15,725. The agreements expire in 1999 through
2001.
5 - SUBSEQUENT EVENTS
In July of 1997, the Company announced the formation of a new
construction equipment division, Rush Equipment Centers, Inc. Concurrently, the
company entered into a letter of intent with C. Jim Stewart & Stevenson, Inc.
to purchase the assets of its John Deere dealership in the Texas gulf coast
territory. The acquisition, subject to regulatory approval, the approval of
John Deere Construction Equipment Company and the signing of a definitive
purchase agreement, is expected to close on or about September 30, 1997.
6 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which requires that certain items currently reported in stockholders'
equity, such as foreign currency translation adjustments and gains and losses
on certain securities, be shown in a financial statement, displayed as
prominently as other financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997 and requires reclassification of
earlier financial statements for comparative purposes. Management of the
Company does not anticipate the adoption of SFAS No. 130 will have a material
impact on the Company's financial position or results of operations.
In June 1997, The FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which requires the
disclosure of segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues
and about its major customers. SFAS No. 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," and is effective for fiscal
years beginning after December 15, 1997. Management of the Company does not
anticipate the adoption of SFAS No. 131 will have a material impact on the
Company's financial position or results of operations.
7
<PAGE> 8
1. PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in this quarterly report on Form 10-Q,
including statements regarding the anticipated development and expansion of the
Company's business, expenditures, the intent, belief or current expectations of
the Company, its directors or its officers, primarily with respect to the
future operating performance of the Company and other statements contained
herein regarding matters that are not historical facts, are "forward-looking"
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, those discussed in other filings made by the
Company with the Securities and Exchange Commission, including the factors set
forth in the Company's registration statement on Form S-1 (registration
statement #333-03346).
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 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.
In March 1997, the Company acquired the assets of Denver Peterbilt,
Inc., which consisted of full service Peterbilt dealerships in Denver and
Greeley, Colorado.
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, 1997 and 1996.
8
<PAGE> 9
The following table sets forth for the periods indicated certain financial data
as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
New and used truck sales 75.0% 74.7% 74.5% 74.2%
Parts and service 19.9 19.1 19.7 19.5
Lease and rental 3.6 4.1 3.7 4.1
Finance and insurance 1.1 1.6 1.2 1.8
Other 0.4 0.5 0.9 0.4
------------ ----------- ----------- -----------
Total revenues 100.0 100.0 100.0 100.0
Cost of products sold 84.9 84.0 84.5 82.6
------------ ----------- ----------- -----------
Gross profit 15.1 16.0 15.5 17.4
Selling, general and administrative expenses 12.2 11.7 12.5 13.3
Depreciation and amortization 0.7 0.7 0.7 0.7
------------ ----------- ----------- -----------
Operating income 2.2 3.6 2.3 3.4
Interest expense 0.5 1.3 0.5 1.3
------------ ----------- ----------- -----------
Income before income taxes 1.7 2.3 1.8 2.1
Provision for income taxes (1) 0.6 0.9 0.6 0.8
------------ ----------- ----------- -----------
Net income (1) 1.1% 1.4% 1.2% 1.3%
------------ ----------- ----------- -----------
</TABLE>
(1) Pro forma income assuming the Company had been taxed as a C corporation
during 1996.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues
Revenues increased by approximately $11.1 million, or 13.1%, from
$84.6 million to $95.7 million from the second quarter of 1996 to the second
quarter of 1997. Sales of new and used trucks increased by approximately $8.6
million, or 13.6%, from $63.2 million to $71.8 million from the second quarter
of 1996 to the second quarter of 1997. Unit sales of new and used trucks
increased by 8.7% and 37.7%, respectively, from the second quarter of 1996 to
the second quarter of 1997, while new truck average revenue per unit decreased
by 0 .6% and used truck average revenue per unit decreased by 6.5%. Average
used truck prices decreased due to a change in product mix.
Parts and service sales increased by approximately $2.9 million, or
17.9%, from $16.2 million to $19.1 million. The increase was due to the
acquisition of the Colorado parts and service operations in March of 1997, and
internal growth rates in existing locations of 11.1%.
Lease and rental revenues decreased by approximately $20,000, or .6%
from $3.47 million to $3.45 million. The decrease was due to growth of 8.9% at
the Company's California operations, offset by a decreases of 1.6% and 7.9% at
the Texas and Oklahoma locations, respectively.
Finance and insurance revenues decreased by approximately $333,000, or
24.0%, from $1.4 million to $1.1 million from the second quarter of 1996 to the
second quarter of 1997. The majority of the decrease resulted from increased
competition coupled with higher borrowing costs. Finance and insurance revenues
have limited direct costs and, therefore, contribute a disproportionate share
of operating profits.
9
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Gross Profit
Gross profit increased by approximately $923,000, or 6.8%, from $13.6
million to $14.5 million from the second quarter of 1996 to the second quarter
of 1997. Gross profit as a percentage of sales decreased from 16.0% to 15.1%
from the second quarter of 1996 to the second quarter of 1997. The net decrease
in gross profit as a percentage of sales resulted from the decrease in finance
revenues, coupled with slight decreases in parts and service margins in the
California operations. The net decrease in gross profit was offset by improved
margins on new and used truck sales of .72% and .48%, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by
approximately $1.8 million, from $9.9 million to $11.7 million, or 18.2%, from
the second quarter of 1996 to the second quarter of 1997. The majority of the
increase, or $987,000, was attributable to the inclusion of the Colorado
locations. The remaining increase resulted from an increase in truck sales
commissions and increases in executive salaries pursuant to the initial public
offering. Selling, general and administrative expenses as a percent of revenue
were 11.7% for the second quarter of 1996 and 12.2% for the same quarter of
1997.
Interest Expense
Interest expense decreased by approximately $639,000 from $1,072,000
to $433,000, or 59.6%, from the second quarter of 1996 to the second quarter of
1997, primarily as the result of decreased levels of indebtedness due to the
Company's initial public offering on June 7, 1996.
Income before Income Taxes
Income before income taxes decreased by $399,000, or 19.9% from $2.0
million to $1.6 million from the second quarter of 1996 to the second quarter
of 1997, as a result of the factors described above.
Income Taxes
As a result of the Company's initial public offering and termination
of its subchapter S tax status, the Company incurred $610,000 of income taxes
during the second quarter of 1997. The Company has provided for taxes at a 38%
effective rate.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues
Revenues increased by approximately $15.2 million, or 9.3%, from
$163.5 million to $178.7 million from the first six months of 1996 to the first
six months of 1997. Sales of new and used trucks increased by approximately
$12.3 million, or 10.2%, from $121.3 million to $133.6 million from the first
six months of 1996 to the first six months of 1997. Unit sales of new and used
trucks increased by 7.7% and 32.6%, respectively, from the first six months of
1996 to the first six months of 1997, while new and used truck average revenue
per unit decreased by 2.8% and 2.5%. respectively. Average new truck prices and
used truck prices decreased due to a change in product mix..
Parts and service sales increased by approximately $3.4, or 12.5%,
from $32.0 million to $35.4 million. The increase was due to the acquisition of
the Colorado parts and service operations in March of 1997, and internal growth
rates in existing locations of 7.3%.
Lease and rental revenues increased by approximately $20,000, or .3%
from $6.64 million to $6.66 million. The increase was due to growth of 13.3% at
the Company's California operations, offset by a decreases of 6.7% and 6.1% at
the Texas locations and the Oklahoma locations, respectively.
Finance and insurance revenues decreased by approximately $794,000, or
27.6%, from $2.9 million to $2.1 million from the first six months of 1996 to
the first six months of 1997. The majority of the decrease resulted from
increased competition coupled with higher borrowing costs. Finance and
insurance revenues have limited direct costs and, therefore, contribute a
disproportionate share of operating profits.
10
<PAGE> 11
Gross Profit
Gross profit decreased by approximately $782,000, or 2.8%, from $28.4
million to $27.6 million from the first six months of 1996 to the first six
months of 1997. Gross profit as a percentage of sales decreased from 17.4% to
15.5% from the first six months of 1996 to the first six months of 1997. The
net decrease in gross profit as a percentage of sales resulted from the
decrease in finance and insurance revenues coupled with slight decreases in
used truck, parts and service margins in the California operations.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by
approximately $716,000, from $21.8 million to $22.5 million, or 2.5%, from the
first six months of 1996 to the first six months of 1997. The increase includes
$1.3 million, that is attributable to the Colorado locations. This increase was
offset by the decrease in first quarter truck sales commissions. Selling,
general and administrative expenses as a percent of revenue were 13.3% for the
first six months of 1996 and 12.6% for the first six months of 1997.
Interest Expense
Interest expense decreased by approximately $1.1 million from $2.0
million to $900,000, or 54.9%, from the first six months of 1996 to the first
six months of 1997, primarily as the result of decreased levels of indebtedness
due to the Company's initial public offering on June 7, 1996.
Income before Income Taxes
Income before income taxes decreased by $584,000, or 16.9% from $3.5
million to $2.9 million from the first six months of 1996 to the first six
months of 1997, as a result of the factors described above.
Income Taxes
As a result of the Company's initial public offering and termination
of its subchapter S tax status, the Company incurred $1.1 million of income
taxes during the first six months of 1997. The Company has provided for taxes
at a 38% effective rate.
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, 1997, the Company had working capital of
approximately $17.4 million, including, among other things, $15.1 million in
cash and cash equivalents, $18.2 million in accounts receivable, $34.6 million
in inventories, and $579,000 in prepaid expenses and other current assets, less
$10.8 million of accounts payable and accrued expenses, $7.5 million of current
maturities on long-term debt and $32.8 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.
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 $1.4 million more than offset increases in inventories of $2.7
million and accounts payable and accrued liabilities of $ 2.3 million.
11
<PAGE> 12
For the first six months of 1997, operating activities provided $10.1
million of cash. Operating increases included net income of $1.8 million,
decreases in accounts receivable, inventories and other assets of $4.9 million,
$4.3 million, and $924,000 respectively, and increases in depreciation and
amortization and accounts payable of $1.3 million and $896,000 respectively.
Operating decreases resulted from a decrease in accrued liabilities of $4.0
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.
During the first six months of 1997, the Company used $11.0 million
for investing activities, primarily due to the acquisition of Denver Peterbilt,
Inc., property and equipment additions related to the construction of the Pharr
Perterbilt facility, and renovations of several existing facilities.
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.
For the first half of 1997, net cash used in financing activities
amounted to $5.5 million. Payments on floor plan financing and reductions in
notes payable balances more than offset borrowings on notes payable.
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, 1997, the Company had $32.8 million outstanding under its
floor plan financing arrangement with GMAC. GMAC permits the Company to earn,
for up to 75% 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.
Backlogs
The Company enters firm orders into its backlog at the time the order
is received. Customer orders are typically filled in 75 to 90 days and
customers normally place orders on that basis. However, certain customers,
including fleets and governmental entities, 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, 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, 1996 and 1997, were approximately $92.0
million and $113.0 million, respectively. Backlogs increased due to increased
order volume.
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, governmental entities, 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.
12
<PAGE> 13
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
13
<PAGE> 14
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
<S> <C>
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on June 4,
1997.
(b) The following directors were elected to serve until the
next Annual Meeting of Shareholders or until their
successors have been elected and qualified:
</TABLE>
<TABLE>
<S> <C>
W. Marvin Rush W. M. "Rusty" Rush
Robin M. Rush Joseph M. Dunn
Ronald J. Krause John D. Rock
</TABLE>
(c) (1) The director's in (b) above were elected by the
following number of votes:
<TABLE>
<CAPTION>
NAME NUMBER OF VOTES FOR NUMBER OF VOTES WITHHELD
---- ------------------- ------------------------
<S> <C> <C>
W. Marvin Rush 6,162,741 2,756
Robin M. Rush 6,163,197 2,300
Ronald J. Krause 6,163,197 2,300
W.M. "Rusty" Rush 6,163,197 2,300
Joseph M. Dunn 6,163,197 2,300
John D. Rock 6,163,197 2,300
</TABLE>
(2) The proposal to approve the adoption of the Company's
1997 Non-Employee Director Stock Option Plan (the
"Plan") was approved as 5,592,258 shares of Common
Stock were voted "For", 58,577 shares of Common Stock
were voted "Against", 514,662 shares of Common Stock
abstained from voting and 478,233 shares of common
stock were unvoted.
(3) Of the 6,165,497 number of shares of Common Stock
voting at the meeting, 6,163,187 shares voted for the
ratification of the appointment of the firm Arthur
Andersen L.L. P. as the Company's independent
accountants for 1997. The number of shares that voted
against the ratification was 1,150 and the holders of
1,160 shares abstained from the voting.
(1)
Item 5. Other Information
Not Applicable
14
<PAGE> 15
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
<S> <C> <C>
a) Exhibits
Exhibit
Number
-------
11.1 Computation of pro forma earnings per share
(filed herewith)
27.1 Financial data schedule (filed herewith)
b) Reports on Form 8-K
None
</TABLE>
15
<PAGE> 16
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 13, 1997 By: /s/ W. MARVIN RUSH
------------------
Name: W. Marvin Rush
Title: Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1997 By: /s/ MARTIN A. NAEGELIN, JR.
---------------------------
Name: Martin A. Naegelin, Jr.
Title: Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
16
<PAGE> 17
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
11.1 Computation of pro forma earnings per share (filed herewith)
27.1 Financial data schedule (filed herewith)
</TABLE>
<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,
---------------------- -----------------------
1997 1996 1997 1996
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE CALCULATION
Net Income $ 997 $ 1,606 $ 1,782 $ 3,058
Weighted average number of common shares outstanding 6,644 4,319 6,644 4,035
======== ========= ========= =========
Earnings per share - Primary $ 0.15 $ 0.37 $ 0.27 $ 0.76
======== ========= ========= =========
FULLY-DILUTED EARNINGS PER SHARE CALCULATION
Net Income $ 997 $ 1,606 $ 1,782 $ 3,058
Weighted average number of common shares outstanding 6,644 4,319 6,644 4,035
======== ========= ========= =========
Earnings per share - Fully diluted (1) $ 0.15 $ 0.37 $ 0.27 $ 0.76
======== ========= ========= =========
</TABLE>
(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%.
<TABLE>
<CAPTION>
PRO FORMA EARNINGS PER SHARE
<S> <C> <C>
Pro forma income after provision for income taxes $ 1,244 $ 2,144
Weighted average shares of common stock outstanding 4,319 4,035
Pro forma shares issued at offering price to pay undistributed
S corporation earnings 439 493
-------- ---------
Pro forma weighted average shares outstanding 4,758 4,528
-------- ---------
Pro forma income per share $ 0.26 $ 0.47
======== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RUSH ENTERPRISES, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 15,142
<SECURITIES> 0
<RECEIVABLES> 18,169
<ALLOWANCES> 0
<INVENTORY> 34,551
<CURRENT-ASSETS> 68,441
<PP&E> 31,358
<DEPRECIATION> (6,139)
<TOTAL-ASSETS> 102,594
<CURRENT-LIABILITIES> 51,011
<BONDS> 11,987
0
0
<COMMON> 66
<OTHER-SE> 38,408
<TOTAL-LIABILITY-AND-EQUITY> 102,594
<SALES> 0
<TOTAL-REVENUES> 178,684
<CGS> 151,044
<TOTAL-COSTS> 174,887
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 923
<INCOME-PRETAX> 2,874
<INCOME-TAX> 1,092
<INCOME-CONTINUING> 1,782
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,782
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
