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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 0-20797
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 IH-10 EAST, SAN ANTONIO, TEXAS 78219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 661-4511
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 PERIODS
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
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS
PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K
OR ANY AMENDMENT TO THIS FORM 10-K.
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The aggregate market value of voting stock held by
non-affiliates of the registrant as of March 26, 1998 was approximately
$31,548,000, based upon the last sales price on March 26, 1998 on the NASDAQ
National Market for the Company's common stock. The registrant had 6,643,730
shares of Common Stock outstanding on March 26, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
PORTION'S OF REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION NOT LATER THAN 120 DAYS
AFTER THE CLOSE OF THE REGISTRANT'S FISCAL YEAR ARE INCORPORATED BY
REFERENCE INTO PART III OF THIS FORM 10-K.
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RUSH ENTERPRISES, INC.
INDEX TO FORM 10-K
YEAR ENDED DECEMBER 31, 1997
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PART I
Item 1. Business 3
Item 2. Properties 32
Item 3. Legal Proceedings 34
Item 4. Submission of Matters to a Vote of Security Holders 34
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 34
Item 6. Selected Consolidated Financial Data 35
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 39
Item 8. Financial Statements and Supplementary Data 51
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 76
PART III
Item 10. Directors and Executive Officers of the Registrant 76
Item 11. Executive Compensation 76
Item 12. Security Ownership of Certain Beneficial Owners and Management 76
Item 13. Certain Relationships and Related Transactions 76
PART V
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 77
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Certain statements contained in this Form 10-K are "forward-looking
statements" within the meaning of the Section 27A of the Securities Act and
Section 21E of the Exchange Act. Specifically, all statements other than
statements of historical facts included in this Form 10K regarding the Company's
financial position, business strategy and plans and objectives of management of
the Company for future operations are forward-looking statements. These
forward-looking statements are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect" and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current view of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions related to certain factors
including, without limitation, competitive factors, general economic conditions,
customer relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein and in the
Company's Registration Statement on Form S-1 (File No. 333-3346) and in the
Company's annual, quarterly and other reports filed with the Securities and
Exchange Commission (collectively, "cautionary statements"). Although the
Company believes that its expectations are reasonable, it can give no assurance
that such expectations will prove to be correct. Based upon changing conditions,
should any one or more of these risks or uncertainties materialize, or should
any underlying assumptions prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated, expected, or
intended. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the applicable cautionary statements.
PART I
ITEM 1. BUSINESS
References herein to the "Company" or "Rush Enterprises" mean Rush
Enterprises, Inc., a Texas corporation, its subsidiaries and Associated
Acceptance, Inc., the insurance agency affiliated with the Company, unless the
context requires otherwise. The Company was incorporated in Texas 1965 and
currently consists of two segments: the Heavy Duty Truck segment, and the
Construction Equipment segment.
GENERAL
The Heavy Duty Truck segment 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;
after-market 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. The Company's truck centers
are strategically located in high truck traffic areas on or near major highways
in Texas, California, Oklahoma,
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Colorado and Louisiana. The Company is the largest Peterbilt truck dealer in the
United States, representing approximately 14.7% of all new Peterbilt truck sales
in 1997, and is the sole authorized vendor for new Peterbilt trucks and
replacement parts in its market areas. The Company was named Peterbilt Dealer of
the Year for North America for the 1993-1994 year. The criteria used to
determine the recipients of this award include, among others, image, customer
satisfaction, sales activity and profitability.
The Company believes that large, multi-location, full-service dealerships,
which offer a large selection of new and used trucks, parts and sophisticated
service and body shop facilities, are able to realize economies of scale and
have a competitive advantage in the truck sales and services industry. The
Company's growth strategy is to continue the expansion of its existing
facilities, to open new facilities in its existing territories and to acquire
additional Peterbilt dealerships in new territories.
The Construction Equipment segment, formed during 1997, operates a
full-service John Deere dealership that serves the Houston, Texas metropolitan
and surrounding areas. Dealership operations include the retail sale of new and
used equipment, after-market parts and service facilities, equipment rentals,
and the financing of new and used equipment. The Company believes the
construction equipment industry is highly-fragmented and offers opportunities
for consolidation. As a result, the Company's growth strategy is to realize
economies of scale, favorable purchasing power, and cost savings by developing a
network of John Deere dealerships through acquisitions and growth inside
existing territories. The Company currently operates only one construction
equipment dealership and there can be no assurance that the Company will be able
to successfully develop a network of construction equipment dealerships or, if
such network of construction equipment dealerships is established, that it will
realize economies of scale, favorable purchasing power or cost savings.
The Company's executive offices are located at the San Antonio, Texas truck
center at 8810 I.H. 10 East, San Antonio, Texas 78219, and its mailing address
is P. O. Box 34630, San Antonio, Texas 78265-4630. The Company's phone number is
(210) 661-4511.
INDUSTRY OVERVIEW
Heavy-duty trucks are primarily used for over-the-road and off-highway
hauling of general freight and a number of vocational applications, including
the hauling of petroleum, wood products, refuse, construction materials and
other specialty uses. Trucks are purchased for commercial purposes and are
outfitted to perform according to the specifications of the user. Customers
include owner-operators, regional and national fleets, corporations and
government organizations.
Trucks marketed by the Company are typically classified in the Class 8
heavy-duty truck category. Class 8 trucks are constructed on a heavy-duty
chassis, which includes the engine, drive train and operations components and
have a minimum gross vehicle weight ("gvw") rating above 33,000 pounds, with the
typical heavy-duty truck having a gross combined weight ("gcw") of approximately
80,000 pounds. Industry-wide negotiated sales prices for new Class 8 heavy-duty
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trucks generally range from $57,000 to $100,000 and negotiated sales prices for
new Peterbilt trucks generally range from $65,000 to $100,000, depending upon
features and component specifications.
Typically, Class 8 trucks are assembled by the manufacturer utilizing
certain components manufactured by other companies, including engines,
transmissions, axles, wheels and other components. As trucks and truck
components have become increasingly complex, including the use of computerized
controls and diagnostic systems, the ability to provide state-of-the-art service
for a wide variety of truck equipment has become a competitive factor in the
industry. Such service requires a significant capital investment in advanced
equipment, parts inventory and a high level of training of service personnel.
Additionally, Environmental Protection Agency ("EPA") and Department of
Transportation ("DOT") regulatory guidelines for service processes, including
body shop, paint work and waste disposal, require sophisticated operating and
testing equipment to ensure compliance with environmental and safety standards.
Differentiation between truck dealers has become less dependent on pure price
competition and is increasingly based on their ability to offer a wide variety
of trucking services. These include the ability to provide easily accessible,
efficient and sophisticated truck service, replacement parts, the ability to
offer financing for truck purchases, leasing and rental programs and the ability
to accept multiple unit trade-ins related to large fleet purchases.
The United States retail heavy-duty truck industry is highly fragmented with
over 1,700 dealerships nationwide, including 84 Peterbilt dealers operating 192
locations. New heavy-duty truck sales historically have shown a high correlation
to the rate of change in industrial production and gross domestic product.
According to data published by R. L. Polk, during 1997 new heavy-duty truck
sales in the United States were 184,211 units, decreasing by.4% from the 184,989
units sold in 1996. Annual domestic retail heavy-duty truck sales have averaged
approximately 184,700 units for the five years ended December 31, 1997. New
Peterbilt truck registrations during the calendar year ended December 31, 1997
were 20,624, for a national market share, based on new truck registrations, of
11.2%. In the Company's eleven primary market areas 17,920 new heavy-duty trucks
were registered in 1997, 3,378 of which were new Peterbilts, resulting in an
average market share for Peterbilts of 18.9%.
Customers of the Company's Construction Equipment segment include
contractors, for both residential and commercial construction, utility
companies, federal, state and local government agencies, and various
petrochemical, industrial and material supply type businesses that require
construction equipment in their daily operations. The Construction Equipment
segment has a diverse customer base and provides a full line of equipment for
light to medium size applications and related product support to its customers.
Its primary products include John Deere backhoe loaders, hydraulic excavators,
crawler dozers, and four-wheel drive loaders. Industry-wide negotiated sales
prices for this type of equipment generally range from $20,000 to $350,000.
The United States construction equipment industry is highly fragmented with
over 90 John Deere dealers nationwide, operating 350 locations. New construction
equipment sales historically have shown a high correlation to the rate of change
in industrial production and gross domestic product. In the Company's primary
market area 520 new construction equipment units were sold
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in the last quarter of 1997, 90 of which were manufactured by John Deere,
resulting in an average market share for John Deere of 17.3%.
BUSINESS STRATEGY
Heavy Duty Truck Segment
The Company's business strategy for the Heavy Duty Truck segment is to
operate an integrated full-service dealer network marketing Peterbilt heavy-duty
trucks and related services in the Western and Southern regions of the United
States. As part of its business strategy, the Company will seek to expand its
existing dealerships, establish new full-service and parts/service Peterbilt
dealerships in its existing and newly appointed territories and make strategic
acquisitions of additional Peterbilt heavy-duty truck dealers in new
territories. The Company has successfully implemented its business strategy
which has resulted in significant market penetration within both existing and
new market areas. The Company's objective is to continue to build upon this base
of operations and enhance its position as a leading dealer of heavy-duty trucks
and related services by emphasizing the following key elements of its business
strategy.
One-Stop Center. The Company has developed its "one-stop truck center" where
customers can purchase new Peterbilt or used heavy-duty trucks, lease and rent
heavy-duty Peterbilt trucks, purchase after-market parts and accessories and
have virtually any kind of truck serviced by factory-certified technicians, all
at one convenient location. Rush Truck Centers are the sole authorized vendor
for new Peterbilt trucks and replacement parts in their market areas and have
expansive parts departments that display many of the parts in open showrooms in
a mix tailored to local buying patterns and market trends. As part of its
one-stop sales and service strategy, the Company, through its wholly owned
subisdiary, Rush Financial Services, offers third-party financing and insurance
products to assist customers purchasing a new or used truck, as well as truck
leasing and rentals. The Company's truck centers, four of which are open 24
hours a day, six days a week for parts and service, are located on or near major
highways in high truck traffic areas. The continued implementation and
enhancement of its one-stop truck center concept is an integral element of the
Company's business strategy.
Dealership Network. The Company believes it is one of the few organizations
in the heavy-duty truck sales and service industry to operate a large,
multi-state, full-service dealership network in an effort to realize economies
of scale. The Company believes that its expansion and increasing economies of
scale have resulted in superior purchasing power, favorable financing terms and
cost savings from centralized management, which have enabled the Company to
maximize profitability and offer competitive prices to its customers. In
addition, the Company's dealership network and consistency in service have
allowed it to reinforce relationships with fleet customers and attract those
customers traveling throughout the Company's territories by guaranteeing them
competitive and uniform pricing for parts and service at each of its truck
centers. Management believes that this has resulted in continuing customer
relationships. Furthermore, because of its large size, strong relationships with
fleet customers and its ability to
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handle large quantities of used truck trade-ins, the Company, unlike most
dealers, markets and sells to fleets nationwide.
The Company believes that its aggressive expansion program into California,
Oklahoma, Louisiana, and most recently into Colorado, and diversification into
truck-related services, including financial services, leasing, renting and
service and parts, has reduced cyclicality in the Company's operations due to
geographic diversity and reduced reliance on new and used truck sales. The
geographic diversity of the Company's dealer network has significantly increased
the Company's customer base while ameliorating the effects of certain local and
regional economic downswings that more severely affect single dealership
operators. Management believes that the Company's full-service concept and
continued geographic expansion will help to mitigate and correct the adverse
impact on the Company's operations resulting from reduced demand for new and
used heavy-duty trucks and regional economic downturns.
Rush Truck Center Development. In 1995, the Company has began to employ a
branding program for its facilities, designating each as a Rush Truck Center
through distinctive signage and uniform marketing programs to enhance its name
recognition and to communicate the standardized high level of quality products
and services throughout its truck center network. The Company believes the Rush
Truck Center strategy will increase its market recognition and encourage its
customers to utilize multiple locations throughout its dealership network.
Currently all locations are branded Rush Truck Centers.
Expansion in Existing and New Territories. Since 1990, the Company has
opened six facilities in its existing and new territories. As part of its
expansion strategy, the Company intends to continue to open both full-service
and parts/service truck centers to enhance market coverage in its existing
territories and to enter newly appointed territories. In identifying new areas
for expansion and acquisition, the primary focus of the Company is the market's
historic level of new heavy-duty truck registrations, customer buying trends and
the availability of suitable facilities. By late 1998, management plans to
expand its existing full service dealerships in Shreveport and Southern
California, relocate and expand its existing parts/service facilities in
Southern California into a full service dealership, relocate and expand its
Houston, Texas and Tulsa Oklahoma dealerships. A leasing location was opened in
Pharr, Texas in early 1998.
The parts/service truck centers offer a variety of product and service
combinations, including parts, rental and leasing services; parts, service and
body shop facilities; and parts only. Management often analyzes the performance
of a parts/service truck center as a factor to determine whether a full-service
facility is warranted in a market area. The Company's truck centers in Lufkin
and Laredo, Texas, and Bossier City, Louisiana, were originally opened as
parts/service facilities and later expanded into full-service dealerships. The
Company also intends to continue to open parts/service facilities in areas of
its territory to maximize market coverage.
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PACCAR, Inc., the parent company to Peterbilt, typically evaluates the
management and capitalization of a prospective dealer in determining whether to
grant such prospective dealer additional Peterbilt territories. The Company
believes that its management and capitalization allow it to effectively compete
for such additional dealership locations. Although the Company does not have
exclusive territories, management believes that it is unlikely that PACCAR will
create additional dealerships in the market areas in which the Company currently
operates. The Company is not aware of any policies of PACCAR that would limit
its ability to continue to acquire additional Peterbilt dealerships; however,
there can be no assurance that PACCAR will not object to ownership concentration
of Peterbilt dealerships beyond a certain level.
Expansion by Acquisition. The Company has, since 1990, acquired six
full-service and two parts/service truck centers, and its current expansion plan
focuses beyond its existing presence in Texas, California, Louisiana, Oklahoma
and, most recently, Colorado. The Company's operating strategy and management
systems establish a framework for continued acquisitions into the foreseeable
future. Management believes that it can improve the operating results of
acquired dealers as a result of economies of scale, sophisticated management
information systems, purchasing power, merchandising capability and the
introduction of enhanced financial services and products.
In March 1997, the Company purchased the assets of Denver Peterbilt, Inc.,
which consisted of two full-service Peterbilt dealerships in Denver and Greeley,
Colorado. The Company believes that the acquisition of such facilities provides
the Company with an immediate market presence in the state of Colorado. The
purchase price was approximately $7.9 million, funded by (i) $6.5 million of
cash and (ii) $1.4 million of borrowings under the Company's floor plan
financing arrangement with GMAC to purchase new and used truck and parts
inventory. The Company also entered into an agreement whereby the principal of
Denver Peterbilt, Inc. may receive additional amounts based on future sales of
new Peterbilt trucks at the Colorado locations, through March 1999.
Any prospective acquisition which the Company may be able to negotiate would
require the willingness of PACCAR to accept the Company as a Peterbilt dealer at
such additional retail locations. Although the Company is constantly evaluating
acquisition opportunities, as of the date of this Form 10-K, the Company does
not have any agreements or understandings, written or oral, with any third party
regarding a potential acquisition or business combination.
Construction Equipment Segment
The Company currently operates a single full-service John Deere dealership in
Houston, Texas. Due to the highly fragmented nature of the construction
equipment industry, the Company perceives an opportunity to establish an
integrated full-service dealer network to market John Deere construction
equipment and related services in the United States. The Company intends to take
advantage of this opportunity by duplicating the business strategy that it
utilized to create its network of Heavy Duty Truck dealerships. This business
strategy has allowed the Company to achieve significant market penetration
within both existing and new market areas for its Heavy Duty Truck segment. In
attempting to duplicate this business strategy in its Construction Equipment
segment, the
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Company intends to make strategic acquisitions of additional John Deere
construction equipment dealerships in new territories and grow facilities and
sales in existing territories. The Company's objective is to establish itself as
a leading dealer of construction equipment and related services by emphasizing
the following key elements of its business strategy.
One-Stop Center. At its Houston location, the Company is developing a
"one-stop equipment center" where customers can purchase new John Deere or used
construction equipment, lease and rent John Deere construction equipment, as
well as purchase after-market parts and accessories and have virtually any kind
of construction equipment serviced by factory-certified technicians, all at one
convenient location. Additionally, the equipment center operates a fleet of
field service technicians that perform repair and maintenance services at the
customer's location. The Rush Equipment Center is the sole authorized vendor for
new John Deere construction equipment and replacement parts in the Houston,
Texas market area and has an expansive parts department that displays many of
the parts in an open showroom in a mix tailored to local buying patterns and
market trends. As part of its one-stop sales and service strategy, the Company,
through Rush Financial Services, offers third-party financing and insurance
products to assist customers purchasing new or used equipment, as well as
equipment leasing and rentals. The continued implementation and enhancement of
its one-stop equipment center concept is an integral element of the Company's
business strategy.
Dealership Network. The Company believes that building a large multi-state,
full-service network of construction equipment dealerships will provide
economies of scale that will lead to superior purchasing power, favorable
financing terms and cost savings from centralized management. Furthermore, the
Company believes that the similarities between the Heavy Duty Truck segment and
the Construction Equipment segment will create synergies that will benefit both
segments. Approximately 40% of the Company's heavy duty truck customers in the
Houston market are involved in businesses that use construction equipment and
regularly purchase and rent construction equipment, parts and service.
Management believes that strong customer relationships developed in the Heavy
Duty Truck segment will benefit the Construction Equipment segment in its early
stages.
The Company believes that if it is able to geographically diversify and
create a construction equipment dealership network, that the associated growth
of equipment related services, including financial services, renting, service,
and parts, will reduce cyclicality in the Company's operations. Furthermore,
such geographic diversification would support the sale of used equipment retired
from the rental fleet through the ability to relocate used equipment to various
geographic regions based on market demand, the access to an expanded customer
base, and the availability of trained personnel to service the used equipment to
enhance its resale value.
Rush Equipment Center Development. The Company is also applying its
branding program for its facilities to the Construction Equipment segment,
designating Houston as a Rush Equipment Center through distinctive signage and
marketing programs to enhance its name recognition and to communicate the
standardized high level of quality products and services. The Company believes
the Rush Equipment Center strategy will increase its market recognition and
intends to establish any newly acquired facilities as Rush Equipment Centers.
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Expansion by Acquisition. The Company acquired its first full-service
equipment center in October of 1997. The Company's operating strategy and
management systems establish a framework for continued acquisitions into the
foreseeable future. Management believes that it can improve the operating
results of any acquired dealers through economies of scale, sophisticated
management information systems, purchasing power, merchandising capability and
the introduction of enhanced financial services and products.
In October 1997, the Company purchased certain assets and assumed certain
liabilities of C.Jim Stewart & Stevenson, Inc., which consisted of one
full-service John Deere dealership in Houston, Texas. The acquisition provides
the Company with an immediate presence in the construction equipment industry in
the state of Texas. The purchase price was approximately $30.2 million, funded
by (i) $4 million of cash, (ii) $21.1 million of borrowings under the Company's
floor plan financing arrangement with Associates Commercial Corp. and John Deere
Inc., (iii) $3,080,000 in real estate borrowings from the Company's primary
commercial lending institution, and (iv) a $2,062,500 promissory note payable to
the seller.
Any prospective acquisition which the Company may be able to negotiate would
require the willingness of John Deere, Inc., to accept the Company as a John
Deere dealer at such additional retail locations. Although the Company is
constantly evaluating acquisition opportunities, as of the date of this Form
10-K, the Company does not have any agreements or understandings, written or
oral, with any third party regarding a potential acquisition or business
combination. There can be no assurances that the Company will be able to
successfully establish a construction equipment center dealership network, that
it will be able to acquire additional construction equipment dealerships, or
that if such dealerships are acquired or such network is created, that the
Company will be able to successfully achieve economies of scale and improved
operating results of such acquired dealerships.
TRUCK CENTERS
The Company currently operates eleven full-service and six parts/service
truck centers in Texas, California, Oklahoma, Louisiana and Colorado. Rush Truck
Centers are strategically located in high truck traffic areas on or near major
highways. The Company's original dealership opened in Houston, Texas in 1965,
and, since 1990, the Company has grown through a combination of acquisitions and
new store openings in its existing and newly-appointed territories. The Company
currently operates four full-service truck centers in Texas, two in Southern
California, two in Oklahoma, one in Louisiana and two in Colorado.
The full-service truck centers 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 products. The Company's six parts/service facilities offer a
variety of product and service combinations in areas of the Company's markets to
maximize market coverage. Four of the Company's truck centers are open 24 hours
a day, six days a week for parts and services. Recently, the Company opened a
full-service truck center in
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the Texas Rio Grande Valley area, and intends to the relocate and expand a
Southern California parts/service facility into a full service dealership, to
relocate the Company's Houston, Texas sales and service facilities to a new full
service dealership located adjacent to the Company's John Deere equipment
dealership, to relocate and expand its Tulsa Oklahoma full-service dealership,
and to expand an existing full-service dealership in Southern California.
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The full-service truck centers range in size from 13,500 to 73,000 square
feet, with from six to 50 service bays, and are situated on lots ranging from
three to 14 acres, while the parts/service facilities range in size from 2,500
to 6,200 square feet, with from six to 25 service bays, and are situated on lots
ranging from 0.4 to five acres. The typical full-service Rush Truck Center
displays between 10 and 100 new and used trucks, has six to 40 repair and
maintenance service bays, four to 20 body shop bays, one to four paint bays, an
open retail parts showroom ranging from 600 to 2,000 square feet, a parts
warehouse ranging from 3,000 to 20,000 square feet and administrative and sales
offices ranging from 1,000 to 7,000 square feet. Facility characteristics are
determined by market needs.
Set forth below is a summary description of each the Company's facilities:
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DATE
OPENED FINANCING
RUSH TRUCK OR STATUS/ TRUCK LEASING AND
CENTER LOCATION ACQUIRED METHOD SALES SERVICE PARTS BODY SHOP AND RENTING INSURANCE
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Existing Truck
Centers
San Antonio, TX.......... 1968 Start-up O O O O O(8) O
Houston, TX(1)........... 1988 Start-up O O
Houston, TX(1)........... 1988 Start-up O O O(2)
Houston, TX(1)........... 1993 Start-up O O O(3)
Houston, TX(1)........... 1993 Start-up O O O
Lufkin, TX............... 1991 Start-up O O O O O
Laredo, TX............... 1993 Start-up O O O O(4) O
Bossier City, LA......... 1994 Start-up O O O O O
Pico Rivera, CA.......... 1994 Acquisition O O O O O O
Sun Valley, CA(5)........ 1994 Acquisition O
Fontana, CA.............. 1994 Acquisition O O O O O O
Tulsa, OK(9)............. 1995 Acquisition O O O O O
Oklahoma City, OK........ 1995 Acquisition O O O O(6) O
Oklahoma City, OK........ 1995 Acquisition O O O
Denver, 1997 Acquisition O O O O O O
CO(7).................
Greeley, 1997 Acquisition O O O O O
CO(7).................
Rio Grande Valley, 1997 Start-up O O O O O
TX(10).................
Planned Truck Centers
Southern CA(5)........... 1998 Start-up O O O O
Expanded Facilities
Houston, 1998 Start-up O O O O O O
TX(1)..................
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(1) The Company started a full-service dealership in Houston, Texas in 1965,
which was sold in 1979. The Company reacquired the dealership in 1988.
Currently, the Company has begun construction on a facility that will
relocate the dealership, parts and service, leasing and renting and finance
and insurance facilities to a single location.
(2) Paint shop only.
(3) Operating at another location in Houston from 1988 to 1993.
(4) Trailer repair shop.
(5) The Company currently plans to relocate and expand into a full service
dealership by late 1998.
(6) Body shop completed in mid 1997.
(7) The acquisition of the Denver, Colorado and Greeley, Colorado locations was
completed in March 1997. The Company started leasing and rental and finance
and insurance operations during 1997.
(8) The Company opened leasing and rental operation in San Antonio, Texas
during 1997.
(9) The Company currently plans to relocate and expand this dealership by late
1998.
(10) The Company completed construction and opened a full-service dealership,
including leasing and rental in late 1997.
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TRUCK SALES
New Truck Sales. Rush Truck Centers sell new trucks which are marketed under
the Peterbilt nameplate primarily in the Class 8 diesel category. The Company
also markets Class 7 Peterbilt trucks (having a gvw rating of 26,001 to 33,000
pounds), Peterbilt refuse chassis and cement mixer chassis, GMC medium-duty
trucks and, at its Oklahoma facilities, Volvo Class 8 heavy-duty trucks. The
Company's new Class 8 Peterbilt trucks, which are manufactured and supplied to
the Company by PACCAR, constitute over 90% of all new trucks sold by the
Company. Peterbilt trucks have a reputation as premium-quality vehicles which
are skillfully designed and driver friendly, and are typically customized to
satisfy the requirements of its customers. Peterbilt's premium reputation is an
important aspect of the Company's marketing of new and used trucks and
management believes that such reputation has resulted in relatively higher
resale prices for used Peterbilt trucks. New heavy-duty truck sales are the
largest segment of the Company's business, accounting for approximately 72.7% of
total revenues in 1997.
The Company's customers use Peterbilt heavy-duty trucks for over-the-road
and off-highway handling of virtually all materials, including general freight,
petroleum, wood products, refuse and construction materials. PACCAR purchases
major truck components, such as engines, transmissions, tires, wheels and axles
from other manufacturers, pursuant to each customer's specifications, to
assemble its new trucks. The Company sells approximately 75% of its new
heavy-duty trucks according to customer order, and the remaining 25% are sold
out of inventory at its truck centers. It takes between 60 days and six months
for the Company to receive delivery from PACCAR on a new truck order from the
time an order is placed.
A new Peterbilt heavy-duty truck typically ranges in negotiated price from
$65,000 to $100,000, while a typical Class 8 truck ranges in negotiated price
from $57,000 to $100,000. The Company aggressively markets to regional and
national fleets, with approximately 60% of all unit sales to fleet customers
(those that purchase more than five trucks in a single 12-month period) and the
balance of new truck sales to other owner-operators, corporations and local
governments. An important competitive issue for the Company's customers is
driver retention, with a typical fleet averaging in excess of 100% driver
turnover annually. Management believes Peterbilt trucks, due to their premium
reputation and attractiveness to the drivers, are increasingly being used by
major fleets and carriers as incentives to attract new drivers and retain
existing drivers.
The Company has a competitive advantage in that it can absorb multi-unit
trade-ins often associated with fleet sales of new trucks and disperse the used
trucks for resale throughout its dealership network. Because of its large size,
strong relationships with fleet customers and its ability to handle large
quantities of used truck trade-ins, the Company, unlike most dealers, markets
and sells to fleets nationwide. Additionally, the Company believes that its
attention to customer service and its broad range of trucking services,
including its ability to offer truck financing and insurance, has resulted in a
high level of customer loyalty. During 1997, approximately 75% of the Company's
truck sales were to repeat customers. The Company sold 3,040 new trucks in 1997
compared with 2,871 in 1996.
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Used Truck Sales. The Company sells used heavy-duty trucks of numerous
manufacturers, including Peterbilt, Kenworth, Freightliner, Mack and Navistar.
The Company is well positioned to market used heavy-duty trucks due to its
ability to recondition used trucks for resale utilizing its parts and service
departments and to shift inventory from location to location to satisfy customer
demand. Approximately 85% of the Company's used truck fleet is comprised of
trucks taken as trade-ins by new truck customers to be used as all or part of
the new truck customer's down payment, and the remainder are purchased from
third parties for resale on the Company's retail lots.
The Company's used truck sales staff is trained to evaluate each prospective
used truck on the basis of wholesale value and the costs of delivery,
reconditioning and otherwise making the truck ready for sale. In a fleet
purchase of several new trucks, not all of the trucks traded in will be suitable
for sale on a Rush Truck Center's retail lot. Trucks that are not acceptable are
typically sold at wholesale. Most used trucks acquired by the Company require
some reconditioning prior to resale. The reconditioning process generally takes
between one and three weeks, depending on the type of services to be performed.
The Company utilizes its on-site parts, service and body shop facilities to
perform such reconditioning services. Unlike new trucks, the majority of the
Company's used trucks are sold "as is" and without manufacturer's warranty,
although manufacturers sometimes provide limited warranties on used vehicles if
they have been reconditioned at a Rush Truck Center prior to resale or if the
manufacturer's warranty is transferable and has not yet expired.
The Company closely monitors the age and quality of its used truck inventory
and transfers such inventory between truck centers in order to maximize
inventory turnover, avoid inventory overstock and understock situations and
satisfy customer demand. The Company sold approximately 1,952 used trucks during
1997 compared with 1,349 in 1996.
CONSTRUCTION EQUIPMENT SALES
New Equipment Sales. The Rush Equipment Center sells new equipment under the
John Deere nameplate primarily in the construction industry. John Deere has a
reputation of producing premium-quality, skillfully designed equipment. John
Deere's premium reputation is an important aspect of the Company's marketing of
new and used equipment and management believes that such reputation results in
relatively higher prices for used John Deere equipment.
Customers of the Company's Construction Equipment segment include contractors,
for both residential and commercial construction, utility companies, federal,
state and local government agencies, and various petrochemical, industrial and
material supply type businesses that require construction equipment in their
daily operations. The Construction Equipment segment provides a full line of
equipment for light to medium size applications and related product support to
its customers. Its primary products include John Deere backhoe loaders,
hydraulic excavators, crawler dozers, and four-wheel drive loaders. While the
sale of new John Deere construction equipment is the main focus, the Rush
Equipment Center construction equipment store also offers complementary
equipment from other manufacturers, as well as used equipment taken as
trade-ins.
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A new John Deere piece of construction equipment typically ranges in price from
$20,000 to $350,000. The Company aggressively markets to regional fleets and
current truck customers that use construction equipment. An important
competitive issue for the Company's customers is asset management. The
availability of a well maintained rental fleet allows customers manage their
assets by obtaining equipment on an as needed basis. Additionally, management
believes John Deere equipment, due its premium reputation and quality, provides
lower maintenance and repair costs over its useful life, and provides a higher
residual value at trade-in. The Company sold 90 new construction equipment units
during the three months ended December 31, 1997.
Used Equipment Sales. The Company sells used construction equipment of numerous
manufacturers, including John Deere, Catepillar, Komatsu and Case. The Company
believes that future geographic diversification and the establishment of a well
maintained rental fleet will be key in the marketing of used equipment and will
afford the Company the ability to utilize additional parts and service
departments for the reconditioning of used equipment, and to shift used
equipment from location to location to satisfy customer demand. Management
expects the majority of the used equipment inventory will be derived from the
rental fleet, and the remainder to be taken as trade-ins from new equipment
customers.
The Company's used equipment sales staff is trained to evaluate each prospective
unit of used equipment on the basis of wholesale value and the costs of
delivery, reconditioning and otherwise making the equipment ready for sale. The
Company utilizes its on-site parts and service facilities to perform such
reconditioning services. Unlike new equipment, the majority of the Company's
used equipment is sold "as is" and without manufacturer's warranty, although
manufacturers sometimes provide limited warranties on used equipment if the
manufacturer's warranty is transferable and has not yet expired.
The Company closely monitors the age and quality of its used equipment inventory
to maximize inventory turnover, avoid overstock and understock situations and to
satisfy customer demand. The Company sold approximately 35 used construction
equipment units during the three months ended December 31, 1997.
FINANCIAL SERVICES
As part of its one-stop sales and service strategy, the Company offers
third-party financing and insurance products to assist customers purchasing a
new or used trucks and construction equipment. The Company also offers truck
leasing and rentals at five of its locations and maintains a rental fleet at its
equipment center. Revenues from financial services were $4.7 million in 1997,
or 1.2%, of total revenues.
New and Used Truck Financing. Each new and used truck customer is directed
by the Company's truck sales staff to the Company's financial services sales
personnel. The Company, through Associates, the largest third-party provider of
heavy-duty truck financing in North America, and PACCAR Financial, financed
approximately $91.4 million of new and used truck purchases by customers in
1997, an increase of 19.6% from the $76.4 million financed in 1996.
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The Company is one of the largest originators of Class 8 heavy-duty truck loans
for Associates. At times, the Company also acts as a broker, matching truck
purchasers with alternative financing sources in exchange for a fee that is
determined on a case-by-case basis.
During 1997, the Company arranged customer financing for approximately 31.5%
of its total new and used truck sales, with approximately 64% related to new
truck sales and the remaining 36% of financing related to used truck sales. The
financings are typically installment contracts, which are secured by the trucks
financed, and generally require a down payment of 10% to 30%, with the remaining
balance financed over two to five years. The Company presents all of its truck
financing opportunities in Texas, Oklahoma, Colorado, and Louisiana to
Associates and its truck financing opportunities in California to PACCAR
Financial. Approximately 88% of the principal amount financed by the Company
under installment contracts during 1997 was financed through Associates, with
the remainder financed through PACCAR Financial. 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. Such payments are subject to offsets resulting from the early
pay-off of, or defaults under, installment contracts previously sold to
Associates and PACCAR Financial by the Company. The Company has been able to
negotiate favorable discount rates with Associates and PACCAR Financial because
of its low historical delinquency rate, and, with respect to Associates, the
large volume of trucks financed.
Associates and PACCAR Financial analyze each customer's credit risk and
determine whether they will extend credit and the minimum terms for doing so.
The Company evaluates the standards prescribed by Associates and PACCAR
Financial and determines whether it is agreeable to completing the financing on
such terms. The Company often requires an increased down payment, higher finance
charges or additional collateral in order to complete the financing. The
Company's agreements with Associates and PACCAR Financial limit the aggregate
recourse 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. The Company carefully monitors its outstanding installment
contracts and actively communicates with Associates and PACCAR Financial
regarding delinquent accounts. Over the last five years, the default rate on
loans originated by the Company has averaged less than .5% per year. The Company
has not in the past experienced significant losses resulting from defaults on
loans, and such losses have historically been significantly less than the amount
of its total recourse liability.
NEW AND USED EQUIPMENT FINANCING. Each new and used equipment customer is
directed by the Company's equipment sales staff to the Company's financial
services sales personnel. The Company, through The CIT Group, Associates
Commercial Corp., and John Deere Credit, financed approximately $3.5 million of
new and used equipment purchases by customers during the fourth quarter of 1997,
an increase of 25% from the $2.8 million financed during the fourth quarter of
1996.
During 1997, the Company arranged customer financing for approximately 60%
of its total new and used equipment sales, with approximately 70% related to new
equipment sales and the remaining 30% of financing related to used equipment
sales. The financings are typically
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installment or lease contracts, which are secured by the equipment financed, and
generally require a down payment of 0% to 7%, with the remaining balance
financed over three to five years. The Company presents all of its equipment
financing opportunities to The CIT Group, Associates Commercial Corp., and John
Deere Credit, (Finance Providers). The Company's contract with the Finance
Providers 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. The Company
has been able to negotiate favorable discount rates with the Finance Providers
because of its reputation in truck financing and performance.
The Finance Providers analyze each customer's credit risk and determine
whether they will extend credit and the minimum terms for doing so. The Company
evaluates the standards prescribed by the Finance Providers and determines
whether they are agreeable to completing the financing on such terms. All
finance contracts are sold to the Finance Providers without recourse.
Truck Leasing and Rental. The Company engages in full-service Peterbilt
truck leasing under the PacLease trade name at eight of its locations. Under the
terms of a full-service lease, all parts sales, service and maintenance for the
lease or rental trucks is performed at the Company's facilities. The Company has
increased its lease and rental fleet from less than 100 trucks in 1993 to
approximately 628 trucks at December 31, 1997. The Company owns approximately
10% of its lease and rental fleet, and approximately 90% of the fleet is leased
from PACCAR. The Company was named PacLease Western Region Franchise of the Year
in 1995 and Midwest Region Franchise of the Year in 1996. The criteria used to
determine the recipients of this award include, among others, image, customer
satisfaction, rental utilization and profitability.
The Company offers both long-term leasing and short-term rentals to its
customers. Approximately 75% of the Company's fleet is leased to customers for
periods ranging from one to seven years, and the remainder of the trucks are
rented or leased for periods ranging from one day to two years. The Company
generally holds trucks in its lease and rental fleet for approximately five
years and then typically sells such used trucks through its truck centers. The
Company has consistently realized gains on the sale of such trucks in excess of
lease purchase option values. The Company constantly monitors the age of its
lease and rental fleet, and as trucks are taken out of the fleet, the Company
adds new trucks as needed. The average age of trucks in the Company's lease and
rental fleet is 28 months. The Company's lease and rental customers provide a
market to support the Company's parts and service operations by creating
additional parts sales and service work for the Company. The Company also
receives a rebate from PACCAR for each Peterbilt truck purchased for use in its
lease fleet.
Equipment Rental. The Company engages in full-service John Deere equipment
rental. Under the terms of a full-service rental contract, all parts sales,
service and maintenance for the rental equipment is performed at the Company's
facilities. The Company's rental fleet consist of approximately 160 units as of
December 31, 1997.
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The Company offers both long-term and short-term rentals, and rental
purchase options to its customers. Management believes that its rental
operations will continue to benefit from the trend among businesses to outsource
operations, including equipment ownership, in order to minimize their capital
investment in equipment, as well as reducing or eliminating the down-time,
maintenance, repair and storage costs associated with equipment ownership. The
Company constantly monitors the age of its rental fleet, and as equipment is
taken out of the rental fleet, new equipment is added as needed. The average age
of equipment in the rental fleet is 14 months. Management believes that building
a geographically diverse network of equipment centers would support the sale of
used equipment retired from the rental fleet through the ability to relocate
used equipment to various geographic regions based on market demand, the access
to an expanded customer base, and the availability of trained personnel to
service the used equipment to enhance its resale value.
Insurance Agency Services. The Company sells a complete line of property and
casualty insurance, including collision and liability insurance on trucks, cargo
insurance, standard automobile liability coverages, life, credit life and
health, workers' compensation coverages and homeowner's insurance. The Company's
agents are licensed in six states to sell insurance for various insurance
companies, including Associates Insurance and Motors Insurance Corporation,
which underwrite the products offered by the Company. While the Company sells a
majority of its insurance products to its truck-purchasing customers, the
Company also sells to the general public. The Company believes it has developed
good relationships with its insurance-purchasing customers which resulted in an
average renewal rate of 91% during 1997.
The Company provides insurance premium financing to its insurance customers.
Lending operations are supported by the Company's insurance subsidiary's own
capital base. Premiums for property and casualty insurance are typically payable
at the time a policy is placed in force or renewed. The Company's premium
financing services allow the insured to pay a portion of the premium when the
policy is placed in force and the balance in monthly installments substantially
over the life of the policy. As security, the Company retains a contractual
right to cancel the insurance policy if a premium installment is not paid when
due. In the event of such cancellation, the Company applies the unearned premium
toward the payment obligation of the insured. Premium financing which the
Company offers to its customers does not involve any credit risk since no funds
are advanced to outside parties and the Company is fully secured by the unearned
premiums on the financed policies.
PARTS, SERVICE AND BODY SHOP OPERATIONS
The parts, service and body shop operations of the Company provide
relatively higher profit margins and tend to be less cyclical than new and used
truck and equipment sales. Parts, service and body shop revenues accounted for
approximately $78.7 million, or 19.7%, of the Company's total revenues in
1997.
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Parts
Each Rush Truck Center carries a wide variety of Peterbilt and other parts
inventory, with an average of approximately 4,500 items from over 30 suppliers
at each location. The Company is the sole authorized Peterbilt parts and
accessories supplier in each of its markets and estimates that approximately 80%
of its truck service and parts functions are performed on Peterbilt heavy-duty
trucks.
The Rush Equipment Center carries a wide variety of John Deere and other
parts inventory, with over 12,000 items from over 15 suppliers. The Company is
the sole authorized John Deere parts and accessories supplier in its market and
estimates that approximately 90% of its construction equipment service and parts
functions are performed on John Deere equipment.
The parts departments support the Company's sales and service functions. The
Company utilizes its parts department when performing its repair, maintenance
and body shop services, including all parts required to recondition used trucks
and equipment for resale and maintain and repair the Company's lease fleets. In
addition to supporting the Company's service and body shop functions, the
Company markets its parts and accessories both at its truck and equipment
centers, and through its outside sales staff. The Company's outside sales staff
markets parts directly to fleet customers, who often perform truck and equipment
maintenance and repairs at their own in-house service facilities.
The Company's real-time inventory management tracking systems reduces delays
in parts delivery, helps maximize inventory turns and assists in controlling the
potential of overstock and understock situations. The Company's inventory
systems also assist management in determining the appropriate parts inventory
mix in each location and tailoring such inventory to local buying patterns and
market trends, while monitoring product mix to optimize pricing and maximize
profit margins. The Company's automated reordering system assists each truck and
the equipment center in maintaining the proper inventory levels and permits
inventory delivery to each location, or directly to customers, typically within
24 hours from the time the order is placed. The Company provides the standard
manufacturer's warranty on the parts that it sells, which is generally a 90-day
to one-year replacement guarantee for truck parts and a 90 day replacement
guarantee for construction equipment component parts.
The Company displays many of its higher margin truck parts and accessory
items in open showrooms. Open parts showrooms are typically 600 to 2,000 square
feet and feature up to 1,000 parts items and accessories in a mix tailored to
local buying patterns and market trends. In order to maximize turnover, open
parts showrooms are located near driver lounges and other high traffic areas of
the Company's truck centers. The Company encourages qualified customers to open
accounts for parts purchases.
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Service and Body Shop
Rush Truck Centers feature various combinations of fully equipped service
and body shop facilities capable of handling almost any type of truck repair on
virtually any type of truck, from rebuilding entire trucks and engines to
routine maintenance functions, including tune-ups, oil changes, tire balancing,
front-end alignments and inspections. Rush Truck Centers offer such services in
a relaxed and accommodating atmosphere. Most Rush Truck Centers have driver
lounges equipped with televisions, recliners, sofas, phones and food and
beverage machines to allow drivers to sleep, relax or conduct business while
waiting for service to be performed. To simplify the buying process, the Rush
Truck Centers offer "menu" pricing of service and body shop functions and offer
expedited service at a premium price for certain routine repair and maintenance
functions.
The Company has a total of 247 service bays, including 12 paint bays,
throughout its network. The Company performs both warranty and non-warranty
service work, with the cost of the warranty work being reimbursed by the
manufacturer at retail consumer rates. The Company estimates that approximately
20% of its service functions are performed under manufacturers' warranties. Rush
Truck Centers are Peterbilt designated warranty service centers and most are
authorized service centers for a number of manufacturers of heavy-duty truck
components, including Cummins, Detroit Diesel, Caterpillar, Eaton and Rockwell.
Manufacturers permit warranty work to be performed only at designated warranty
service centers. To enhance accuracy and timeliness in payment of warranty
claims, the Company maintains a computerized system for sending warranty claims
to PACCAR and various other manufacturers.
The Company's service and body shop facilities, four of which are open 24
hours a day, six days a week, are equipped with state-of-the-art tools and
diagnostic equipment and staffed by manufacturer-trained and certified service
technicians. The Company's service technicians perform full-service truck
repairs and make-ready on Peterbilt and virtually any other type of heavy-duty
truck. Rush Truck Centers' factory-certified service employees regularly attend
manufacturer-sponsored training programs to remain abreast of current diagnostic
and repair and maintenance techniques. The Company employs an innovative
compensation program for its service technicians designed to encourage the
performance of expedited and high quality repair and maintenance services.
Rather than paying service technicians on an hourly basis, each technician
receives a flat rate for each service or repair performed. If a service or
repair is performed incorrectly, the technician making the initial repair or
service must correct the situation without additional compensation. This
compensation arrangement facilitates the retention of efficient service
technicians who can increase their compensation by expeditiously and accurately
completing service and repairs.
The Company's body shops, which include multiple EPA approved paint bays,
are fully equipped to make virtually any type of truck body repair, from
complete reconstruction of truck frames damaged in accidents to repairs and
replacements of hoods, body panels and fenders. Rush Truck Centers' body shops
are also used to refurbish trucks in need of updating due to changes in industry
standards or to satisfy regulatory guidelines.
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The equipment center maintains a fully equipped service facility capable of
handling almost any type of equipment repair on virtually any type of equipment.
Services range from rebuilding engines to routine maintenance functions,
including tune-ups, oil changes, etc. The equipment center includes service bays
staffed by highly trained service technicians, as well as a fleet of field
service trucks and technicians who make on-site repairs at the customers
location. The equipment center is a John Deere designated warranty service
center and technicians receive training from John Deere and certain other
suppliers, as well as additional on-site training conducted by the Company.
Manufacturers permit warranty work to be performed only at designated warranty
service centers. To enhance accuracy and timeliness in payment of warranty
claims, the Company maintains a computerized system for sending warranty claims
to John Deere.
SALES AND MARKETING
The Company's aggressive expansion program and long history of operations in
the heavy duty truck segment have resulted in a customer base that is diverse in
terms of geography, industry and scale of operations. The Company's customers
include owner-operators, regional and national fleets, corporations and local
governments, none of which accounted for more than 7% of its total sales in
1997. Because of its large size, strong relationships with fleet customers and
its ability to handle large quantities of used truck trade-ins, the Company,
unlike most dealers, markets and sells to fleets nationwide. Management also
believes that the consistently reliable service received by customers at each
Rush Truck Center and the Company's longevity have resulted in increased
recognition of the "Rush" name, customer loyalty and continuing customer
relationships. During 1997, approximately 75% of the Company's truck sales were
to repeat customers.
The Company believes that large, multi-location, full-service dealerships,
which offer a large selection of new and used trucks, parts and sophisticated
service and body shop facilities, are able to realize economies of scale and
have a competitive advantage in the truck sales and services industry. As part
of its strategy, the Company has employed a Rush Truck Center branding program
for its truck facilities to enhance the Company's name recognition and to
communicate the standardized high level of quality products and services
throughout its truck center network. Currently all of the Company's Peterbilt
dealerships are branded as Rush Truck Centers.
The Company generally promotes its trucks and related services through its
sales staff, trade magazine advertisements and attendance at industry shows,
including the International Truck Show and the Southwest Trucking Show. In
addition to cultivating walk-in customers, the Company's sales staff also makes
customer visits and participates in organizations that support industries that
utilize the Company's trucks. The Company uses its proprietary direct mail
database to distribute its bi-monthly truck magazine, which includes new and
used truck and parts specials, and other marketing materials to over 50,000
existing and potential customers. Support of the industry is achieved through
membership and support of trucking organizations, such as the American Truck
Dealers and American Trucking Association. In addition, the Company has a
world-wide web site on the Internet featuring truck and parts specials at
http://www.rushtruckcenters.com.
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The Company's new truck sales staff consists of 102 employees, including a
Senior Vice President of Sales and Marketing and ten regional sales managers.
Used trucks are sold through 35 used truck sales personnel, including a Vice
President of Used Trucks and five regional sales managers. The sales staff at
each Rush Truck Center receives sales training, instruction on technical and
operating aspects of the trucks and education with respect to the industries in
which such trucks are utilized, including the waste-disposal, construction and
forestry industries. The sales staff of each Rush Truck Center is compensated on
a commission and salary basis, with a high percentage of compensation based on
commission.
The Company has approximately 135 parts and service sales employees,
including a Senior Vice President of Dealership Operations, a national director
of parts, a national director of service and body shop operations, 18 regional
service managers and 13 regional parts managers. The Company sells parts in
conveniently located open showrooms and parts counters at its truck centers and
directly to fleet customers through its outside sales staff. The direct
marketing to its fleet customers is intended to position the Company as the
primary supplier of parts to such customers, who often perform truck maintenance
and repairs at their own in-house service facilities.
The equipment center's customer base includes contractors, for both
residential and commercial construction, utility companies, federal, state and
local government agencies, and various petrochemical, industrial and material
supply type businesses that require construction equipment in their daily
operations, none of which accounted for more than 5% of its total sales in the
fourth quarter of 1997. The creation of a network of equipment centers large
enough to handle large fleet sales nationwide would build economies of scale
through favorable purchasing power and proportionately lower operating costs due
to centralized management. Currently, strong marketing efforts are being made to
truck customers who are involved in the construction business. Management
believes that these customers are familiar with the consistently reliable
service that is synonymous with the "Rush" name. As part of this strategy, the
Company has branded its Houston facility as a Rush Equipment Center in order to
enhance the Company's name recognition and to communicate the standardized high
level of quality products and services that can be expected when visiting the
Rush Equipment Center.
The equipment center's staff consist of 77 employees, including a President,
Vice President, General Manager, and five department managers. New and used
equipment is sold through 14 sales personnel. The sales staff at the Rush
Equipment Center receives sales training and instruction on technical and
operating aspects of the equipment and education with respect to the industries
in which such equipment is utilized, primarily the construction and forestry
industries. The sales staff is compensated on a commission and salary basis,
with a high percentage of compensation based on commission. The equipment center
has approximately 30 parts and service employees. The Company sells parts in
showrooms and at its parts counter at its equipment center and directly to
customers through its outside sales staff. The direct marketing to its customers
is intended to position the Company as the primary supplier of parts to such
customers, who often perform equipment maintenance and repairs at their own
in-house service facilities.
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FACILITY MANAGEMENT
Personnel. Each Rush Truck and the Equipment Center is managed by a general
manager who oversees the operations, personnel and the financial performance of
the location, subject to the direction of the Company's corporate office. Each
Rush Truck Center is also typically staffed by a sales manager, parts manager,
service manager, sales representatives, parts employees, and other service and
make-ready employees. The sales staff of each Rush Truck and the Equipment
Center is compensated on a salary plus commission basis, with a high percentage
of compensation based on commission, while the general manager, parts manager
and service manager receive a combination of salary and performance bonus, with
a high percentage of compensation based on the performance bonus. The Company
believes that its employees are among the highest paid in their respective
industries.
General managers annually prepare detailed monthly forecasts and monthly
profit and loss statements based upon historical information and projected
trends and an element of each general manager's compensation is determined by
meeting or exceeding these operating plans. During the year, general managers
regularly review their facility's progress with senior management and make
appropriate adjustments as needed. All employees of the Company undergo annual
performance evaluations.
The Company has been successful in retaining its senior management, general
managers and other employees. The average tenure of the Company's current senior
management is 12 years, and the average tenure of its current truck centers'
general managers is approximately 11 years. To promote communication and
efficiency in operating standards, general managers and members of senior
management attend several Company-wide strategy sessions per year. In addition,
management personnel attend various industry-sponsored leadership and management
seminars and receive continuing education on Peterbilt products, John Deere
products, marketing strategies and management information systems.
Members of senior management regularly travel to each location to provide
on-site management and support. Each location is audited twice a year for
administrative record-keeping, human resources and environmental compliance
matters. The Company has instituted succession planning pursuant to which
employees in each truck and equipment center are groomed as assistant managers
to assume management responsibilities in existing and future dealerships.
Purchasing and Suppliers. The Company believes that pricing is an important
element of its marketing strategy. Because of its size, the Heavy Duty Truck
segment benefits from volume purchases at favorable prices that permit it to
achieve a competitive pricing position in the industry. The Company purchases
its Peterbilt heavy-duty truck inventory and Peterbilt parts and accessories
directly from PACCAR. All other manufacturers' parts and accessories, including
those of Cummins, Detroit Diesel, Caterpillar and others are purchased through
wholesale vendors or from PACCAR, who buys such products in bulk for resale to
the Company and other Peterbilt dealers. All purchasing, volume and pricing
levels and commitments are negotiated by
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the Company's corporate headquarters. The Company has been able to negotiate
favorable terms, which facilitates the Company's ability to offer competitive
prices for its products.
The Company purchases all of its John Deere construction equipment inventory
and John Deere parts directly from John Deere. All other construction equipment
manufacturers' parts and accessories are purchased through wholesale vendors by
the Company. Management believes as the equipment center network of dealerships
is developed, the Company will be able to negotiate favorable price terms
through volume purchasing, and thereby achieve a competitive pricing position in
the industry.
Management Information Systems. Each Rush truck and equipment center
maintains a centralized real-time inventory tracking system which is accessible
simultaneously by all locations and by the Company's corporate office. The
Company utilizes the information assimilated from its management information
systems to determine and monitor the appropriate inventory level at each
facility. From this information, management has developed a model reflecting
historic sales levels of different product lines. This information identifies
the appropriate level and mix of inventory and forms the basis of the Company's
operating plan. The Company's management information systems and databases are
also used to monitor market conditions, sales information and assess product and
expansion strategies. Information received from state and regulatory agencies,
manufacturers and industry contacts allows the Company to determine market share
statistics and gross volume sales numbers for its products as well as those of
competitors. This information impacts ongoing operations by allowing the Company
to remain abreast of changes within the market and allows management to react
accordingly by realigning product lines and by adding new product lines and
models.
Distribution and Inventory Management. The Company utilizes its real-time
inventory management tracking system to maintain a close link between each truck
center. This link allows for a timely and cost-effective sharing of managerial
and sales information as well as the prompt transfer of inventory among various
locations. The transfer of inventory reduces delays in delivery, helps maximize
inventory turns and assists in controlling problems created by overstock and
understock situations. The Company is linked directly to its major suppliers,
including PACCAR, GMC, and John Deere via real-time satellite or frame relay
communication links for purposes of ordering and inventory management. These
automated reordering and satellite communication systems allow the Company to
maintain proper inventory levels and permit the Company to have inventory
delivered to its locations, or directly to customers, typically within 24 hours
of an order being placed.
RECENT ACQUISITIONS
On March 2, 1998, the Company caused its wholly owned subsidiary, Rush
Retail Centers of Texas, Inc., to acquire the stock of D&D Farm and Ranch
Supermarket, Inc. for approximately $10.5 million, with the purchase price being
a combination of cash and notes payable. The Company accounted for the
acquisition as a purchase.
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<PAGE> 25
In October 1997, the Company purchased certain assets and assumed certain
liabilities of C.Jim Stewart & Stevenson, Inc., and Stewart & Stevenson Realty
Corp., which consisted of one full-service John Deere dealership in Houston,
Texas. The acquisition provides the Company with an immediate presence in the
construction equipment industry in the state of Texas. The purchase price was
approximately $30.2 million, funded by (i) $4 million of cash, (ii) $21.1
million of borrowings under the Company's floor plan financing arrangement with
Associates Commercial Corp. and John Deere Inc., (iii) $3,080,000 in real estate
borrowings from Frost National Bank, and (iv) a $2,062,500 promissory note
payable to the seller.
In March 1997, the Company purchased the assets of Denver Peterbilt, Inc.,
which consisted of two full-service Peterbilt dealerships in Denver and Greeley,
Colorado. The Company believes that the acquisition of such facilities provides
the Company with an immediate market presence in the state of Colorado. The
purchase price was approximately $7.9 million, funded by (i) $6.5 million of
cash and (ii) $1.4 million of borrowings under the Company's floor plan
financing arrangement with GMAC to purchased new and used truck and parts
inventory. The Company also entered into an agreement whereby the principal of
Denver Peterbilt, Inc. may receive additional amounts based on future sales of
new Peterbilt trucks at the Colorado locations.
COMPETITION
There is significant competition both within the markets currently being
served by the Company and in new markets into which the Company may enter.
Dealer competition continues to increase based on accessibility of dealership
location, the number of the Company's dealership locations, price, value,
quality and design of the product as well as attention to customer service
(including technical service). The Company believes that it is competitive in
all of these categories. Despite being what the Company believes to be one of
the largest heavy duty truck dealers in the industry in terms of total revenues,
during 1997 the Company accounted for approximately 1.7% of all new Class 8
truck sales in the United States.
The Company's heavy duty truck products compete with Class 8 and Class 7
trucks made by other manufacturers and sold through competing independent and
factory-owned truck dealerships, including trucks manufactured by Navistar
(International), Mack, Freightliner, Volvo, Ford, Western Star, other Class 8
trucks manufactured by PACCAR (Kenworth) and other manufacturers. Management
believes it is able to effectively compete with dealerships and service
providers on the basis of overall Peterbilt product quality, reputation and name
recognition as well as its ability to provide full parts and service support,
financing and insurance and other customer services, at easily accessible
locations in high truck traffic areas on or near major highways.
The Company's construction equipment products compete with construction
equipment manufactured by Catepillar, Komatsu, Case, and other manufacturers.
Management believes it is able to compete with other dealers and service
providers on the basis of overall John Deere product quality, reputation and
name recognition as well as its ability to provide full parts and service
support, financing and insurance and other customer services.
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<PAGE> 26
DEALERSHIP AGREEMENTS
PACCAR. The Company has entered into non-exclusive dealership agreements
(the "Dealership Agreements") with PACCAR with respect to each of the heavy duty
truck territories. The Dealership Agreements each have current terms expiring
between March 2000 and October 2000 and may be terminated by PACCAR upon a
violation by the Company of the provisions contained therein. Upon the
expiration of the term of the Dealership Agreements, written renewals of such
agreements must be executed by PACCAR. Any termination or non-renewal of the
Dealership Agreements must be done by PACCAR in accordance with both state and
federal legislation designed to protect dealers from arbitrary termination or
non-renewal of franchise agreements. The Automobile Dealers Day in Court Act and
applicable state laws provide that termination or non-renewal of a dealership
agreement must be done in "good faith" and upon a showing of "good cause" by the
manufacturer for such termination or non-renewal, as those terms have been
defined by statute and case law. The Company has consistently had its Dealership
Agreements renewed and the Company anticipates obtaining renewals in the future.
However, no assurances can be given that such renewals will be obtained.
The Company is not required to pay a royalty fee under the Dealership
Agreements. Rather, the Company has agreed to stock, sell at retail and service
Peterbilt trucks and products in its defined market areas. Pursuant to the terms
of the Dealership Agreements, the Company is entitled to use the "Peterbilt"
name, trade symbols and intellectual property. PACCAR periodically furnishes the
Company general and specialized truck and parts sales and other service and
technical training programs and makes available to the Company copies of service
manuals and bulletins, publications and technical data to assist in the
effective operation of the Company's services and parts operations. PACCAR also
makes available field personnel who periodically advise the Company on sales,
parts and service related subjects, including fleet sales, product quality,
technical adjustments, repair, replacement and sale of products, customer
relations, warranty administration, and service and parts merchandising,
training and management. PACCAR maintains general advertising and promotion
programs for the sale of Peterbilt products.
Each of the Company's truck dealerships is required to establish and
maintain a ratio of net working capital to total assets ranging from .05 to .25
as provided in its Dealership Agreement. If at any time a dealership's net
working capital falls below the minimum requirements as determined from time to
time by PACCAR, the dealership is required to take steps reasonably necessary to
meet such minimum capital requirements. The Company has had no problem in the
past satisfying such minimum capitalization requirements and does not anticipate
any problems through fiscal 1998. The Dealership Agreements also require the
Company to maintain a uniform accounting system designated by PACCAR and provide
PACCAR with monthly financial and operating data.
The Company is required to provide 60 days' prior written notice to PACCAR
before it enters into a written agreement to sell and service the competitive
vehicles of another truck manufacturer. The purpose of the notice is to provide
PACCAR with an opportunity to evaluate and discuss with the Company the likely
effect of such an action on the Company, PACCAR and the other Peterbilt dealers.
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<PAGE> 27
In the event of a change of control of the Company, the Dealership Agreement
may be immediately terminated by PACCAR. For this purpose, a change of control
occurs (i) if the Dealer Principals (collectively, W. Marvin Rush, W. M. "Rusty"
Rush, Robin M. Rush and other executives of the Company) in the aggregate own
less than 30% of the capital stock entitled to vote on the election of directors
of the Company, or (ii) if any "person" (as that term is defined under the
Securities Exchange Act of 1934, as amended) other than the Dealer Principals or
any person who has been approved in writing by PACCAR, either (x) owns a greater
percentage of the capital stock entitled to vote on the election of directors of
the Company than the Dealer Principals in the aggregate, or (y) holds the office
of Chairman of the Board, President or Chief Executive Officer of the Company.
In the event that the Company were to find it necessary or advisable to sell any
of its Peterbilt dealership locations, PACCAR retains the right of first refusal
to purchase such dealership location in any proposed sale. The change of control
and right of first refusal provisions may have anti-takeover effects.
In addition to its dealership agreements with PACCAR, the Company is also an
authorized dealer for Volvo GM Heavy Truck Corporation ("Volvo") and General
Motors Corporation ("GMC") at certain of the Company's locations.
Volvo. The Company is an authorized, exclusive retail dealer of new Volvo
trucks and parts at its Oklahoma City and Tulsa, Oklahoma facilities. As part of
the dealership agreement with Volvo (the "Volvo Agreement"), the Company is
granted the right to use various Volvo trademarks in the conduct of its business
and the benefit of Volvo materials and training. In order to remain in
compliance with the terms of the Volvo Agreement, the Company must meet certain
sales, service and facilities criteria established by Volvo, provide Volvo with
various financial and planning documents on a regular basis and provide warranty
repairs on covered Volvo trucks.
The Volvo Agreement is effective through March 31, 2000 and is renewed
annually unless terminated according to the provisions of the Volvo Agreement.
The occurrence of any of the following events constitutes grounds for
termination by Volvo: (a) ownership of a majority of the capital stock of the
Company by persons other than W. Marvin Rush and members of his family; (b)
disputes among, or actions by, the Controlling Individuals which may adversely
affect the reputation of Volvo; (c) the sale by the Company of any of its
principal operating assets; (d) the sale or transfer of the Volvo Agreement to
an unauthorized party; and (e) the occurrence of various other material breaches
enumerated in the Volvo Agreement which are typical of dealership agreements.
GMC. Under the Company's non-exclusive dealership Agreement with GMC (the
"GMC Agreement"), GMC provides the Company with, among other things, trucks,
parts and training in the sales and service of GMC medium-duty trucks. GMC also
allows the Company to use various GMC licenses, trade symbols and intellectual
property owned by GMC. The Company is obligated to conform its operations to the
standards established by the GMC Agreement and ongoing reviews of the Company's
facilities and operations. The obligations of the Company include maintaining
minimum size and appearance standards for its dealership facilities, maintaining
its accounting records in conformance with GMC standards, performing GMC
27
<PAGE> 28
warranty repairs and responsibly promoting the sale and service of GMC products
throughout the Company's assigned territory.
The GMC Agreement is effective through October 31, 2000 and may be
terminated by GMC in specific circumstances. The GMC Agreement is based on the
personal relationship between GMC and the Dealer Operators (W. Marvin Rush, W.
M. "Rusty" Rush and Robin M. Rush) and prohibits any attempted assignment,
including upon the death or incapacity of one or more of the Dealer Operators,
of the GMC Agreement to a third party which is not expressly approved by GMC.
With regard to any proposed assignment of the GMC Agreement, GMC retains a right
of first refusal on any offers to purchase the GMC Agreement. The Company is
also prohibited from making any transfer of more than a ten percent equity
interest in the Company without the consent of GMC. Some of the additional
grounds upon which GMC may terminate the GMC Agreement are: (a) material
conflicts with GMC over the Company's facilities and operations; (b) misconduct
by the Company or the Dealer Operators; or (c) failure to maintain the specified
net capital requirement and an open line of credit pursuant to the terms of the
GMC Agreement. The Company has remained in compliance with the terms of the GMC
Agreement and anticipates no conflicts through at least 1998.
The Company believes that the change of ownership resulting from its initial
public offering completed in June 1996 violated the GMC Agreement and that such
agreements is terminable by GMC. The termination of the GMC Agreement would not
have a material adverse impact on the Company.
John Deere. The Company has an agreement with John Deere which authorizes
the company to act as a dealer of John Deere construction, utility and forestry
equipment (the "Construction Dealer Agreement"). The Company's area of
responsibility for the sale of John Deere construction equipment is the Houston,
Texas Metropolitan area and surrounding 20 counties.
Pursuant to the Construction Dealer Agreement, the Company is required,
among other things, to maintain suitable facilities, provide competent
management, actively promote the sale of construction equipment in the
designated area of responsibility, fulfill the warranty obligations of John
Deere, maintain inventory in proportion to the sales potential in the area of
responsibility, provide service and maintain sufficient parts inventory to
service the needs of its customers, maintain adequate working capital, and
maintain stores only in authorized locations. John Deere is obligated to make
available to the Company any finance plans, lease plans, floor plans, parts
return programs, sales or incentive programs or similar plans of programs it
offers to other dealers. John Deere also provides the Company with promotional
items and marketing materials prepared by John Deere for its construction
equipment dealers. The Construction Dealer Agreement entitles the Company to use
John Deere trademarks and tradenames, with certain restrictions.
Under the Construction Dealer Agreement the Company cannot acquire other
John Deere dealerships without John Deere's prior written consent, which John
Deere may withhold in its sole discretion. The prior consent of John Deere is
required for the opening of any John Deere store within the Company's designated
area of responsibility and for the acquisition of any other
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<PAGE> 29
John Deere dealership. In addition, the Company is prohibited from making
acquisitions, initiating new business activity, paying dividends, repurchasing
its capital stock, or making any other distributions to stockholders if the
Company's equity-to-assets ration is below 20%, as calculated by John Deere
pursuant to the provisions of the Construction Dealer Agreement, or if such
ratio would fall below 20% as a result of such action. As of the end of fiscal
1997, the Company's equity-to-assets ratio was 27.1%.
The Company's John Deere dealer appointment is not exclusive. John Deere
could appoint other dealers in close proximity to the Company's existing store.
The area of responsibility can be reduced or terminated by John Deere upon 120
days prior written notice. In addition, the Construction Dealer Agreement can be
amended at any time without the Company's consent, so long as the same amendment
is uniformly made to the dealer agreements of all other John Deere dealers. John
Deere also has the right to sell directly to federal, state, or local
governments, as well as national accounts. To the extent John Deere appoints
other dealers in the Company's market, reduces the area of responsibility
relating to the Company's construction equipment store, or amends the
Construction Dealer Agreement or directly sells substantial amounts of equipment
to government entities and national accounts, the Company's results of
operations and financial condition could be adversely affected.
Other Suppliers. In addition to John Deere, the Company is an authorized
dealer for suppliers of other equipment. The terms of such arrangements vary,
but most of these dealership agreements contain termination provisions allowing
the supplier to terminate the agreement after a specified notice period (usually
180 days).
FLOOR PLAN FINANCING
Substantially all of the Company's truck purchases from PACCAR are made on
terms requiring payment within 15 days or less from 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 on new vehicles to GMAC for a period of 12 months and for used
vehicles for a period of three months. The loan is collateralized by a lien on
the vehicle. 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.
At December 31, 1997, the Company's floor plan arrangements permit the financing
of up to 1,046 new trucks and 422 used trucks and, the Company had $30.7 million
outstanding under its floor plan financing arrangement with GMAC. GMAC permits
the Company to earn interest at the prime rate on overnight funds deposited by
the Company with GMAC for up to 62.5% of the amount borrowed under its floor
plan financing, real estate financing and revolving credit arrangements with
GMAC. GMAC has indicated that it will continue to provide GMAC financing to the
Company in the absence of a franchise agreement with GMC.
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<PAGE> 30
Substantially all of the Company's new construction equipment purchases are
financed by John Deere and Associates Commercial Corp. The Company finances all,
or substantially all, of the purchase price of its new equipment inventory
under its floor plan facilities. The agreement with John Deere provides interest
free financing for five months after which time the amount financed is required
to be paid in full, or an immediate 3% discount with payment due in 30 days.
When the equipment is sold prior to the expiration of the five month period, the
Company is required to repay the principal within approximately 15 days of the
sale. Should the equipment financed by John Deere not be sold within the five
month period, it is transferred to the Associates Commercial Corp. floor plan
arrangement. The Company makes principal payments to Associates Commercial
Corp., for sold inventory, on the 15th day of each month . Used and rental
equipment, to a maximum of book value, is financed under a floor plan
arrangement with Associates Commercial Corp. The Company makes monthly interest
payment on the amount financed and is required to commence loan principal
repayments on rental equipment as book value reduces. Principal payments, for
sold inventory, on used equipment are made the 15th day of each month following
the sale. The loans are collateralized by a lien on the equipment. As of
December 31, 1997, the Company's floor plan arrangement with Associates
Commercial Corp. permit the financing of up to $20 million in equipment. At
December 31, 1997, the Company had $7.6 million and $19.4 million, outstanding
under its floor plan financing arrangements with John Deere and Associates
Commercial Corp., respectively.
PRODUCT WARRANTIES
PACCAR provides retail purchasers of new trucks with a limited warranty
against defects in materials and workmanship, excluding certain specified
components which are separately warranted by component suppliers. The Company
does not otherwise provide any warranty to retail purchasers of new trucks.
John Deere provides retail purchasers of new equipment with a limited
warranty against defects in materials and workmanship, excluding certain
specified components which are separately warranted by component suppliers. The
Company does not otherwise provide any warranty to retail purchasers of new
equipment.
The Company generally sells its used trucks and equipment "as is" and
without manufacturer's warranty, although manufacturers sometimes provide
limited warranties on used vehicles if they have been reconditioned at the Rush
Truck Center prior to resale or if the manufacturer's warranty on the truck or
equipment is transferrable and has not yet expired. The customer does not
receive any warranty from the Company.
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<PAGE> 31
BACKLOG
At December 31, 1997, the Company's backlog of truck orders was
approximately $135 million, compared to $80.0 million at December 31, 1996. The
Company includes in backlog only confirmed orders. It takes between 60 days and
six months for the Company to receive delivery from PACCAR once an order is
placed. The Company expects to fill at least 90% of these orders by the end of
1998. The Company sells approximately 75% of its new heavy-duty trucks by
customer special order, with the remainder sold out of inventory. Included in
the Company's backlog as of December 31, 1997 are orders from a number of the
Company's major fleet customers.
GOVERNMENT REGULATION
The Heavy Duty Truck segment is subject to the National Traffic and Motor
Vehicle Safety Act (the "Act"), Federal Motor Vehicle Safety Standards
promulgated by the DOT and various state motor vehicle regulatory agencies. The
Company believes that it is in compliance with the Act and applicable standards.
The Company's service and body shop facilities are subject to federal, state
and local laws and regulations concerning environmental matters with respect to
air quality and discharges into the environment, as well as storage, shipping,
disposing and manifesting of hazardous materials and hazardous and non-hazardous
waste. These environmental matters are associated with the repair and
maintenance of heavy-duty trucks and construction equipment at the Company's
facilities, and no location or operation exceeds small quantity generation
status. In addition, these laws and regulations affect the storing, dispensing
and discharge of petroleum-based products and other waste, and require the
Company to secure permits in connection with its dealership operations. The
securing of permits and compliance with all laws and regulations can be costly
and could, in the future, affect the Company's earnings; however, to date, the
cost of permitting and compliance has not been material. Further, each
dealership must comply with local governmental requirements concerning zoning,
land use and environmental factors. Although the Company has not experienced
difficulties in obtaining the required licensing or approvals, difficulties in
obtaining such licensing or approvals in the future could result in delays in
the opening of proposed new dealerships. State and local laws and regulations
also require each dealership to obtain licenses to operate as a dealer in
heavy-duty vehicles. The Company has obtained all necessary licenses and
permits, and management believes the Company is in full compliance with all
federal, state and local laws and regulations.
The Company's insurance and financing services are subject to the laws and
regulations of the states in which it conducts business. These laws and
regulations cover all aspects of the Company's insurance and financing business,
including, with respect to insurance, licensing, regulation of insurance
premiums financing rates and insurance agency legislation pertaining to
insurance agencies and their affiliates; and with respect to financing,
commercial finance regulations that in some states may be similar to certain
consumer finance regulations, including
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<PAGE> 32
those governing interest rates and charges, maximum amounts and maturities of
credit and disclosure to debtor of certain terms of each transaction.
The Company is also subject to the regulations promulgated by the
Occupational Safety and Health Administration ("OSHA"), which regulates
workplace health and safety. The Company's facilities are periodically inspected
by representatives of OSHA.
TRADEMARKS
The Peterbilt, Volvo, GMC and John Deere trademarks and trade names, which
are licensed from each of the respective corporations, are recognized
internationally and play an important role in the marketing of the Company's
products. Each corporation engages in a continuous program of trademark and
trade name protection in all marketing areas. The Company holds a registered
trademark with the U. S. Patent and Trademark Office for the name "Rush."
PRODUCT LIABILITY
Products that have been or may be sold by the Company may expose it to
potential liabilities for personal injury or property damage claims relating to
the use of such products. Historically, product liability claims have not been
material to the Company. While the Company maintains third-party product
liability insurance which it believes to be adequate, there can be no assurance
that the Company will not experience legal claims in excess of its insurance
coverage, or claims which are ultimately not covered by insurance. Furthermore,
if any significant claims are made against the Company or PACCAR, the Company's
business may be adversely affected by related negative publicity.
EMPLOYEES
At December 31, 1997, the Company employed approximately 983 people, of
which 102 were involved in the new truck department, 35 in the used truck
department, 14 in equipment sales 641 in parts, service and body shop services,
14 in insurance agency services, six in financing services, 78 in truck leasing
and equipment rental operations and 93 in administrative, management and
corporate functions.
The Company has no contracts or collective bargaining agreements with labor
unions and has never experienced work stoppages. The Company considers its
relations with employees to be satisfactory.
ITEM 2. PROPERTIES
The Company owns its truck center locations in Houston (4) and San Antonio
(1), Texas, as well as 6,000 square feet of administrative office space located
in San Antonio, Texas, its Oklahoma City, Oklahoma facilities, its equipment
center in Houston, Texas, and a 4,140-acre ranch located in Cotulla, Texas. The
remaining facilities operate on leased premises, with the unexpired terms of the
leases ranging from six months to seven years, inclusive of options to
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<PAGE> 33
renew. The Company has an option to terminate its leases on the Bossier City,
Louisiana and Laredo, Texas locations, by providing notice and paying rent in an
amount ranging from three to six months. In all cases the Company pays a fixed
rent and is responsible for taxes, insurance, repairs and maintenance. For 1997,
the total net rent expense for the Company's leased stores was approximately
$1.1 million. The building square footage of the Company's full-service truck
centers range in size from 13,500 to 73,000 square feet, and are situated on
lots ranging from three to 14 acres, while the parts/service facilities range in
size from 2,500 to 6,200 square feet, and are situated on lots ranging from 0.4
to five acres. The Company's equipment center is approximately 44,000 square
feet.
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ITEM 3. LEGAL PROCEEDINGS AND INSURANCE
From time to time, the Company is involved in certain litigation arising out
of its operations in the ordinary course of business. The Company maintains
liability insurance, including product liability coverage, in amounts deemed
adequate by management. To date, aggregate costs to the Company for claims,
including product liability actions, have not been material. However, an
uninsured or partially insured claim, or claim for which indemnification is not
available, could have a material adverse effect on the financial condition of
the Company. The Company believes that there are no claims or litigation
pending, the outcome of which could have a material adverse effect on the
financial position or results of operations of the Company, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholder's during
the fourth quarter of the fiscal year ended December 31, 1997.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock, $0.01 par value ("Common Stock"), is listed for
quotation on the Nasdaq National Market ("NASDAQ/NMS") under the symbol "RUSH."
From June 7, 1996, the date of the Company's initial public offering, the
following table sets forth the high and low closing sales prices for the Common
Stock for the fiscal periods indicated, as reported by the Nasdaq/NMS. The
quotations represent prices in the over-the-counter market between dealers in
securities, do not include retail markup, markdown or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
Fiscal 1997:
First Quarter . . . . . . . . . . . . . . $ 12.38 $ 8.13
Second quarter . . . . . . . . . . . . . . $ 9.00 $ 5.75
Third quarter . . . . . . . . . . . . . . $ 9.63 $ 5.63
Fourth quarter . . . . . . . . . . . . . . $ 9.75 $ 8.00
Fiscal 1996:
Second quarter (from June 7, 1996) . . . . . $ 14.00 $ 12.25
Third quarter . . . . . . . . . . . . . $ 12.75 $ 12.00
Fourth quarter . . . . . . . . . . . . . $ 13.13 $ 12.00
</TABLE>
As of March 26, 1998, there were approximately 65 record holders of the
Common Stock and approximately 750 beneficial holders of the common stock.
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<PAGE> 35
The Board of Directors intends to retain any earnings of the Company to
support operations and to finance expansion and does not intend to pay cash
dividends on the Common Stock in the foreseeable future. Any future
determination as to the payment of dividends will be at the discretion of the
Board of Directors of the Company, and will depend on the Company's financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following Selected Consolidated Financial and Operating Data relating to
the Company has been taken or derived from the Consolidated Financial Statements
and other records of the Company. The consolidated statements of income and
consolidated balance sheets for each of the five years in the period ended
December 31, 1997, have been audited by Arthur Andersen LLP, independent public
accountants. The Financial and Operating Data presented below may not be
comparable between periods in all material respects or indicative of the
Company's future financial position or results of operations due primarily to
acquisitions which occurred during the periods presented, including the
acquisition of the Company's California, Oklahoma, and Colorado heavy-duty truck
operations in February 1994, in December 1995, and in March 1997, respectively,
and the Company's acquisition of the Houston, Texas John Deere construction
equipment center in October 1997. See Note 18 to the Company's Consolidated
Financial Statements for a discussion of such acquisitions. The Selected
Consolidated Financial and Operating Data should be read in conjunction with the
Company's Historical Consolidated Financial Statements and related notes and
other financial information included elsewhere herein. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF INCOME
STATEMENT DATA
Revenues
New and used truck sales........ $ 79,909 $ 143,569 $ 192,949 $ 258,613 $ 290,495
Parts and service .............. 24,604 46.516 53,368 64,505 78,665
Construction Equipment
sales........................... -- -- -- -- 7,518
Lease and rental ............... 2,158 5,476 10,058 13,426 14,761
Finance and insurance........... 2,247 3,774 3,980 5,855 6,026
Other .......................... 1,353 1,936 1,279 1,262 1,904
--------- --------- --------- --------- ---------
Total revenues ............... 110,271 201,271 261,634 343,661 399,369
Cost of products sold ............ 95,811 168.254 219,059 289,143 334,583
--------- --------- --------- --------- ---------
Gross profit ..................... 14,460 33,017 42,575 54,518 64,786
Selling, general and
administrative
expenses ....................... 11,101 25,789 31,238 40,552 50,618
Depreciation and
amortization
expense ........................ 1,022 1,615 1,846 2,416 2,977
--------- --------- --------- --------- ---------
Operating income ................. 2,337 5,613 9,491 11,550 11,191
Interest expense ................. 998 2,048 2,886 3,053 2.513
Minority interest ................ -- 123 162 -- --
--------- --------- --------- --------- ---------
Income from continuing
operations before income
taxes............................. 1,339 3,442 6,443 8,497 8,678
Income tax
expense .......................... -- -- -- 2,295 3,298
--------- --------- --------- --------- ---------
Income from continuing
operations........................ 1,339 3,442 6,443 6,202 5,380
Discontinued operations --
Operating income (loss)......... 325 283 (224) -- --
Gain on disposal ............... -- -- 1,785 -- --
--------- --------- --------- --------- ---------
Income from discontinued
operations ..................... 325 283 1,561 -- --
--------- --------- --------- --------- ---------
Net income ....................... $ 1,664 $ 3,725 $ 8,004 $ 6,202 $ 5,380
========= ========= ========= ========= =========
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
---- ----
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
PRO FORMA INCOME
STATEMENT DATA (Unaudited)
Income from continuing operations before taxes ................................... $6,443 $8,497
Pro forma adjustments to reflect federal and state income
taxes(1) ....................................................................... 2,448 3,229
------ ------
Pro forma income from continuing operations after provision for income taxes ..... $3,995 $5,268
====== ======
Pro forma basic and diluted income from continuing operations per share(2) ....... $ .93 $ .94
====== ======
Weighted average shares outstanding used in the pro forma basic and
diluted \income from continuing operations per share calculation................ 4,297 5,590
====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Number of locations --
Full-service.................... 2 6 8 8 11
Parts/service................... 5 5 6 6 6
- - - - -
Total locations............... 7 11 14 14 17
Unit truck sales --
New trucks...................... 982 1,705 2,263 2,871 3,040
Used trucks..................... 647 889 1,135 1,349 1,952
--- --- ----- ----- -----
Total unit trucks sales....... 1,629 2,594 3,398 4,220 4,992
Aggregate new and used truck
finance
contracts sold (in thousands)... $32,188 $45,453 $53,165 $76,390 $91,445
Truck lease and rental units...... 143 345 521 559 628
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.............. $(245) $(937) $626 $24,676 $18,364
Inventories.................. 14,183 20,755 36,517 36,688 66,757
Total assets................. 29,263 44,185 76,079 109,217 155,478
Floor plan financing......... 10,648 17,325 34,294 42,228 63,268
Line-of-credit
borrowings................. 950 860 10 20 20
Long-term debt, including
current portion............ 8,167 8,887 17,287 15,547 25,181
Shareholders' equity......... 2,706 4,376 7,685 36,692 42,072
</TABLE>
(1) For all periods presented prior to the Company's public offering on June 7,
1996, the Company was an S corporation and was not generally subject to
corporate income taxes. The pro forma income tax provision has been computed
as if the Company were subject to corporate income taxes for all periods
presented based on the tax laws in effect during the respective periods. See
Note 16 to the Consolidated Financial Statements.
(2) Pro forma basic and diluted income from continuing operations per share was
computed by dividing pro forma income from continuing operations by the
weighted average number of common shares outstanding, as adjusted for the
stock split of the Common Stock and giving pro forma effect for the issuance
of 547,400 shares of Common Stock, at an initial public offering price of
$12.00 per share, to repay the line-of-credit borrowings made to fund the
approximately $6.0 million distribution to the Company's sole shareholder of
the undistributed taxable S corporation earnings. See Notes 3 and 5 to the
Consolidated Financial Statements.
38
<PAGE> 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Certain statements contained in this Form 10-K, 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.
Rush Enterprises consist of a Heavy Duty Truck segment and a Construction
Equipment Segment. The Heavy Duty Truck segment 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. The Construction Equipment segment
operates a full-service John Deere dealership whose operations include the
retail sale of new and used equipment, an after-market parts and service
facility, equipment rentals, and the financing of new and used equipment.
In February 1994, the Company consummated the purchase of 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. The purchase price was
approximately $9.6 million, funded by (i) $3.1 million of cash, (ii) $5.4
million of borrowings under the Company's floor plan financing with GMAC to
purchase new and used truck inventory, and (iii) $984,000 payable pursuant to a
note to the seller. In June 1994 the Company purchased the related leasing and
truck rental operations of Engs for $300,000 in cash. In addition, the Company
entered into a five year consulting agreement with two principals of the seller
under which they are paid an aggregate of $12,500 per month. One of the former
employees of Engs became a 10% partner in the acquired business, and the Company
subsequently purchased this interest in August 1995 for cash consideration of
approximately $435,000.
In March 1995, the Company sold an automobile dealership in San Antonio,
Texas, for cash of approximately $3.6 million.
39
<PAGE> 40
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. The purchase price was approximately $10.2
million, funded by (i) $2.7 million of cash, (ii) $3.9 million of borrowings
under the Company's floor plan financing with GMAC to purchase new and used
truck and parts inventory, (iii) a $750,000 interest-free advance against future
accounts receivable from Interstate Billing Services, Inc. and (iv) $2.8 million
payable pursuant to a note to the seller. The Company also agreed to pay the
principals of Kerr an aggregate consulting fee of $2,225 per month for five
years from the effective date of this offering.
In March 1997, the Company purchased the assets of Denver Peterbilt, Inc.,
which consisted of two full-service Peterbilt dealerships in Denver and Greeley,
Colorado. The Company believes that the acquisition of such facilities provides
the Company with an immediate market presence in the state of Colorado. The
purchase price was approximately $7.9 million, funded by (i) $6.5 million of
cash and (ii) $1.4 million of borrowings under the Company's floor plan
financing arrangement with GMAC to purchased new and used truck and parts
inventory. The Company also entered into an agreement whereby the principal of
Denver Peterbilt, Inc. may receive additional amounts based on future sales of
new Peterbilt trucks at the Colorado locations.
In September 1997, the Company opened a new full-service Peterbilt
dealership in Pharr, Texas. This location is strategically positioned to take
advantage of increased heavy-duty truck traffic resulting from the North
American Free Trade Agreement.
In October 1997, the Company purchased certain assets and assumed certain
liabilities of C.Jim Stewart & Stevenson, Inc., which consisted of one
full-service John Deere dealership in Houston, Texas. The acquisition provides
the Company with an immediate presence in the construction equipment industry in
the state of Texas. The purchase price was approximately $30.2 million, funded
by (i) $4 million of cash, (ii) $21.1 million of borrowings under the Company's
floor plan financing arrangement with Associates Commercial Corp. and John Deere
Inc., (iii) $3,080,000 in real estate borrowings from Frost National Bank, and
(iv) a $2,062,500 promissory note payable to the seller.
40
<PAGE> 41
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's historical results
of operations for 1995, 1996, 1997.
The following table sets forth for the years indicated certain financial
data as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
New and used truck sales................ 73.7% 75.3% 72.7%
Parts and service....................... 20.4 18.8 19.7
Construction Equipment Sales -- -- 1.9
Lease and rental........................ 3.8 3.9 3.7
Finance and insurance................... 1.5 1.7 1.5
Other................................... 0.5 0.4 0.5
--- --- ---
Total revenues................ 100.0 100.0 100.0
Cost of products sold................... 83.7 84.1 83.8
---- ---- ----
Gross profit............................ 16.3 15.9 16.2
Selling, general and administrative
expenses.............................. 11.9 11.8 12.7
Depreciation and amortization........... 0.7 0.7 0.7
--- --- ---
Operating income........................ 3.6 3.4 2.8
Interest, net........................... 1.0 0.9 0.6
--- --- ---
Income from continuing operations....... 2.6% 2.5% 2.2%
===== ==== ====
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED WITH FISCAL YEAR ENDED DECEMBER 31,
1996.
Revenues
Revenues increased by approximately $55.8 million, or 16.2%, from $343.6
million to $399.4 million from 1996 to 1997. This increase was attributable to
gains achieved from each of the Company's revenue categories, with the largest
increase resulting from the acquisition of the Company's Colorado facilities in
March 1997.
Sales of new and used trucks increased by approximately $31.9 million, or
12.3%, from $258.6 million to $290.5 million from 1996 to 1997. Unit sales of
new and used trucks increased by 5.9% and 44.7%, respectively. The average
selling price of new trucks increased by .61% while used truck average selling
prices increased by 1.76%. New truck and used truck prices increased due to
product mix and increased market demand.
41
<PAGE> 42
Parts and service sales increased by approximately $14.2 million, or 22.0%,
from $64.5 million to $78.7 million from 1996 to 1997, with the inclusion of the
Colorado, Pharr and John Deere operations accounting for approximately 73% of
the increase and the remainder being attributed to growth at existing locations.
Lease and rental revenues increased by approximately $1.4 million, or 10.4%,
from $13.4 million to $14.8 million from 1996 to 1997, primarily as a result of
an increase of 12.3% in the size of the rental fleet in 1997 compared to 1996,
and the addition of leasing facilities at the San Antonio and Pharr locations in
December 1997.
Finance and insurance revenues increased by approximately $171,000, or 2.9%,
from $5.8 million to $6.0 million from 1996 to 1997. The lack of substantial
growth resulted from increased competition coupled with higher borrowing costs
during the first half of 1997. Finance and insurance revenues have limited
direct costs and, therefore, contribute a disproportionate share of operating
profits.
Gross Profit
Gross profit increased by approximately $10.3 million, or 18.8%, from $54.5
million to $64.8 million from 1996 to 1997, primarily due to the increase in
revenues from the acquisition of the Colorado and John Deere operations, and
opening of the Pharr location. Gross profit as a percentage of sales increased
slightly from 15.9% during 1996 to 16.2% during 1997. The increase in gross
margins was due to a .29% increase in gross profit on the sale of new and used
trucks, the inclusion of the construction equipment store which had a gross
margin of 20.6% on approximately $10.2 million in sales, which was offset by a
.27% decrease in gross margins on parts and service sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by approximately
$10.0 million, or 24.6%, from $40.6 million to $50.6 million from 1996 to 1997.
The increase includes $5.8 million attributable to the addition of the Colorado
and Pharr truck stores and the John Deere construction equipment center. The
remaining increase resulted from an increase in truck sales commissions,
increases in salaries, and infrastructure costs associated with the opening of
the Pharr facility. Selling general and administrative expenses as a percent of
revenue were 11.8% and 12.7% in 1996 and 1997, respectively.
Interest Expense, Net
Net interest expense decreased by approximately $540,000, or 17.4%, from
approximately $3.1 million to $2.5million, from 1996 to 1997. Interest expense
decreased primarily as a result of decreased levels of indebtedness due to the
Company's initial public offering on June 7, 1996.
42
<PAGE> 43
Income from Continuing Operations Before Income Taxes
Income from continuing operations increased by $181,000, or 2.1%, from $8.5
million to $8.7 million, from 1996 to 1997, as a result of the factors described
above.
Income Taxes
Income taxes increased by $1 million, or 43.5%, from $2.3 million to $3.3
million, from 1996 to 1997. The increase is a result of the Company's initial
public offering and termination of its subchapter S tax status during June of
1996, thus only incurring federal income tax expense for approximately half of
1996. The company's effective tax rate for 1996 and 1997 was 38%.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED WITH FISCAL YEAR ENDED DECEMBER 31,
1995.
Revenues
Revenues increased by approximately $82.0 million, or 31.4%, from $261.6
million to $343.7 million from 1995 to 1996. This increase was attributable to
gains achieved from each of the Company's revenue categories, with the largest
increase resulting from the acquisition of the Company's Oklahoma facilities in
December 1995.
Sales of new and used trucks increased by approximately $65.7 million, or
34.0%, from $192.9 million to $258.6 million from 1995 to 1996. Unit sales of
new and used trucks increased by 26.9% and 18.9%, respectively. The average
selling price of new trucks increased by 5.0% while used truck average selling
prices increased by 15.9%. Unit sales increases were due to the factors
described above. New truck and used truck prices increased due to product mix
and increased market demand.
Parts and service sales increased by approximately $11.1 million, or 20.9%,
from $53.4 million to $64.5 million from 1995 to 1996, with the inclusion of the
Oklahoma operations accounting for most of the increase.
Lease and rental revenues increased by approximately $3.4 million, or 33.5%,
from $10.1 million to $13.4 million from 1995 to 1996, primarily as a result of
the acquisition of the Company's Oklahoma facilities in December 1995.
Finance and insurance revenues increased by approximately $1.9 million, or
47.1%, from $4.0 million to $5.9 million from 1995 to 1996, with approximately
$800,000 in growth resulting from the acquisition of the Company's Oklahoma
operations in December 1995.
43
<PAGE> 44
Gross Profit
Gross profit increased by approximately $11.9 million, or 28.1%, from $42.6
million to $54.5 million from 1995 to 1996, primarily due to the increase in
revenues from the acquisition of the Oklahoma operations discussed above. Gross
profit as a percentage of sales decreased slightly from 16.3% during 1995 to
15.9% during 1996. The decrease in gross margins was due to a 1% decrease in
gross profit on the sale of new and used trucks, which was offset by a 1.8%
increase in gross margins on parts and service sales and increased spreads on
customer financings due to improved financing terms. The Company believes that
its increase in gross margins on parts and service activities was in part the
result of integration of distribution and inventory management information
systems in the Company's Oklahoma operations in December 1995 and in its
California operations in April 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by approximately $9.3
million, or 29.8%, from $31.2 million to $40.6 million from 1995 to 1996,
primarily as a result of the increase in revenues described above. As a
percentage of revenues, selling, general and administrative expenses decreased
from 11.9% to 11.8%, respectively, primarily due to the spreading of fixed costs
over a larger base of sales..
Interest Expense, Net
Net interest expense increased by approximately $167,000, or 5.8%, from
approximately $2.9 million to $3.1 million, from 1995 to 1996, respectively,
primarily as a result of increased levels of floor plan financing associated
with increased sales and higher inventory levels during 1996, and the
acquisition of the Company's Oklahoma facilities in December 1995, offset by
proceeds from the Company's initial public offering.
Income from Continuing Operations Before Income Taxes
Income from continuing operations increased by $2.1 million, or 31.9%, from $6.4
million to $8.5 million, from 1995 to 1996, 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 $2.3 million in income taxes from
the period of the initial public offering to December 31, 1996. The Company has
provided for taxes at a 38% effective rate.
44
<PAGE> 45
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED WITH FISCAL YEAR ENDED DECEMBER 31,
1994.
Revenues
Revenues increased by approximately $60.4 million, or 30.0%, from $201.3
million to $261.6 million from 1994 to 1995. This increase was attributable to
gains achieved by each of the Company's revenue categories. Approximately
one-half of the increase from 1994 to 1995 is due to the inclusion in 1995 of a
full year's results of the Company's California dealership operations which were
acquired in February 1994. Increased activity at the Company's San Antonio
dealership was the next largest contributor to revenue growth, while the balance
of the improvement came throughout all other operating locations.
Sales of new and used trucks increased by approximately $49.4 million, or
34.4%, from $143.6 million to $192.9 million from 1994 to 1995. Unit sales of
new and used trucks increased by 32.3% and 27.7%, respectively, during 1995.
While prices of new trucks remained unchanged during 1995, used truck prices
increased by 16.6%. Unit increases were attributable to the factors discussed
above, while price increases resulted from increased market demand.
Parts and service sales increased by approximately $6.9 million, or 14.8%,
from $46.5 million to $53.4 million primarily as the result of the factors
discussed above plus the addition of 18 service and body shop bays at the
Company's facilities in San Antonio, Texas (10), Lufkin, Texas (6) and Fontana,
California (2). Pricing information and decisions improved following the
implementation of the Company's new management information systems installed in
1994.
Lease and rental revenues increased by approximately $4.6 million, or 83.7%,
from $5.5 million to $10.1 million, primarily as the result of (i) the inclusion
of a full year of results from the California lease and rental operations, which
were acquired by the Company in June 1994, and (ii) the addition of 65 trucks to
the California lease and rental fleet during 1995.
Finance and insurance revenues increased by approximately $200,000, or 5.3%,
from $3.8 million to $4.0 million from 1994 to 1995, primarily as a result of
the increased sales of new and used trucks discussed above and an addition to
the Company's insurance sales staff. Finance and insurance revenues have limited
direct costs and therefore contribute a disproportionate share of operating
profits.
Gross Profit
Gross profit increased by approximately $9.6 million, or 29.1%, from $33.0
million to $42.6 million from 1994 to 1995, primarily due to the increase in
revenues discussed above. Gross profit as a percentage of sales increased
slightly from 16.0% to 16.3% from 1994 to 1995. Higher gross margins on new
truck sales and parts and service and body shop operations offset a decrease in
used truck gross margins and decreased spreads from financing activities caused
by rising interest rates.
45
<PAGE> 46
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by approximately $5.4
million, from $25.8 million to $31.2 million, or 21.0%, from 1994 to 1995,
primarily as a result of expenses associated with the California operations. The
balance of the increase resulted from variable expense increases associated with
higher revenues. As a percentage of revenues, selling, general and
administrative expenses declined from 12.5% to 12.0% from 1994 to 1995, due
primarily to the spreading of fixed costs over a larger base of sales, improved
operating efficiencies from the integration of the Company's facilities in
California following their acquisition in February 1994, and implementation of
the Company's management information systems and distribution and management
systems discussed above.
Interest Expense
Interest expense increased by approximately $722,000, from $2.0 million to
$2.8 million, or 35.3%, from 1994 to 1995. Almost half the increase in interest
expense relates to the inclusion of California results for a full year in 1995.
Increased interest expense was also due to the financing of higher inventory
levels to support sales growth as well as increases in interest rates on the
Company's variable-rate borrowings and higher average outstanding debt balances.
Income from Continuing Operations Before Income Taxes
Income from continuing operations increased by $3.0 million, or 87.2%, from
$3.4 million to $6.4 million from 1994 to 1995, 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.
At December 31, 1997, the Company had working capital of approximately $18.4
million, including $19.8 million in cash, $20.9 million in accounts receivable,
$66.8 million in inventories, and $381,000 in prepaid expenses offset by $63.3
million outstanding under floor plan financing, $2.4 million in current
maturities of long-term debt, $5.8 million of accounts payable, $12.5 million in
accrued expenses, and $5.5 million in a note payable to shareholder. The
aggregate maximum borrowing limits under working capital lines of credit with
its primary truck lender are approximately $8.0 million. The Company's floor
plan agreements with its primary truck lender limit the aggregate amount of
borrowings based on the number of new and used trucks. As of December 31, 1997,
the Company's floor plan arrangements permit the financing of up to 1,046 new
trucks and 422 used trucks, respectively, and the availability for new and used
trucks is 704 and 192, respectively. The Company's floor plan agreement with its
primary construction equipment lender is based on the book value of the
Company's construction equipment inventory.
46
<PAGE> 47
As of December 31, 1997, the aggregate amount of borrowing capacity was $20
million, with approximately $19.4 million outstanding. Additional amounts are
available under the Company's John Deere dealership agreement. At December 31,
1997, approximately $7.6 million was outstanding pursuant to the John Deere
dealership agreement.
For 1997, operating activities resulted in net cash provided by operations
of approximately $9.3 million. Net income of $5.4 million, decreases in accounts
receivable and other assets of $2.2 million and $1.1 million respectively, and
increases in depreciation and amortization, accounts payable, accrued expenses,
and the provision for deferred income taxes, of $3.0 million, $594,000 $3.9
million and, $153,000 more than offset an increase in inventory of $6.7 million
and the gain on sale of property and equipment of $305,000.
During 1997, the Company used $46.1 million of net cash in investing
activities, including expenditures of $36.1 million related to the acquisition
of the Colorado Peterbilt locations and the Equipment Center and $10.2 million
that was principally related to the expansion of its various facilities,
including the construction of the Pharr store.
Net cash provided by financing activities in 1997 amounted to $35.1
million. Cash flows from financing activities included proceeds of $21.0 million
from notes payable primarily due to the refinancing of real estate, a net
increase of $21.0 million in floor plan financings due to the addition of the
John Deere equipment center and principal payments on notes payable of $6.9
million.
For 1996, operating activities resulted in net cash provided by operations
of approximately $109,000. The cash provided by operations was primarily due to
higher levels of income and non-cash related depreciation and amortization
offset by increases in accounts receivable and other current assets. Accounts
receivable increased by $6.7 million during 1996, primarily as a result of the
acquisition of the Oklahoma facilities and several medium sized fleet sales made
at the end of the year. Prepaid and other current assets increased by $1.2
million during 1996 as the Company escrowed a down payment of $1.0 million for
the acquisition of Denver Peterbilt, Inc.
During 1996, the Company used $8.1 million of net cash in investing
activities, including capital expenditures of $8.5 million in 1996 that were
principally related to the expansion of its various facilities.
Net cash provided by financing activities in 1996 amounted to $27.4
million. Cash flows from financing activities included proceeds of $31.4 million
from the Company's initial public offering and exercise of stock options, a net
increase of $7.9 million in floor plan financings and net proceeds from notes
payable of $3.1 million. The Company paid dividends of $10.2 million to its
shareholder to distribute approximately $6.0 million of previously taxed
subchapter S earnings and approximately $4.2 million to enable its shareholder
to make required tax payments.
During 1997, the Company arranged financing for approximately 31.5% of its
total new and used truck sales, with approximately 64% related to new truck
sales and the remaining 36% of financing related to used truck sales. The
Company's new and used truck financing is typically
47
<PAGE> 48
provided through Associates and PACCAR Financial. The Company financed
approximately $91.4 million of new and used truck purchases in 1997. 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, 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 repossession losses resulting from 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 from 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 on new vehicles to GMAC for a period of 12 months and
for used vehicles for a period of three months. At December 31, 1997, the
Company had $36.3 million outstanding under its floor plan financing arrangement
with GMAC. GMAC permits the Company to earn, for up to 62.5% of the amount
borrowed under its floor plan financing arrangement with GMAC, interest at the
prime rate, less one-half of a percent, on overnight funds deposited by the
Company with GMAC.
Substantially all of the Company's new equipment purchases are financed by John
Deere and Associates Commercial Corp. The Company finances all , or
substantially all, of the purchase price of its new equipment inventory, under
its floor plan facilities. The agreement with John Deere provides interest free
financing for five months after which time the amount financed is required to be
paid in full, or an immediate 3% discount with payment due in 30 days. When the
equipment is sold prior to the expiration of the five month period, the Company
is required to repay the principal within approximately 15 days of the sale.
Should the equipment financed by John Deere not be sold within the five month
period, it is transferred to the Associates Commercial Corp. floor plan
arrangement. The Company makes principal payments to Associates Commercial
Corp., for sold inventory, on the 15th day of each month . Used and rental
equipment, to a maximum of book value, is financed under a floor plan
arrangement with Associates Commercial Corp. The Company makes monthly interest
payments on the amount financed and is required to commence loan principal
repayments on rental equipment as book value reduces. Principal payments, for
sold inventory, on used equipment are made the 15th day of each month following
the sale. The loans are collateralized by a lien on the equipment. The Company's
floor plan agreements limit the aggregate amount of borrowings based on the book
value of new and used equipment units. As of December 31, 1997, the Company's
floor plan arrangement with Associates Commercial Corp. permits the financing of
up to $20 million in construction equipment. At December 31, 1997, the Company
had $7.6 million and $19.4 million, outstanding under its floor plan financing
arrangements with John Deere and Associates Commercial Corp., respectively.
48
<PAGE> 49
Seasonality
The Company's heavy-duty truck 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 third and fourth 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 40% of such rebates are typically received in the fourth
quarter, resulting in a seasonal increase in gross profit.
Seasonal effects in the construction equipment business are primarily driven
by the weather. As the Company's construction equipment dealership is located in
Houston, Texas, where winters are mild, seasonality currently does not have a
material effect on the Company's construction equipment business. Additionally,
any seasonal effects, resulting from future acquisitions, on construction
equipment sales related to the seasonal purchasing patterns of any single
customer type are mitigated by the Company's diverse customer base that includes
contractors, for both residential and commercial construction, utility
companies, federal, state and local government agencies, and various
petrochemical, industrial and material supply type businesses that require
construction equipment in their daily operations.
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 industry-wide domestic retail sales of
heavy-duty trucks exceeded 200,000 units for the first time in 1995 according to
R.L. Polk, new order volume declined toward the end of that year and the
industry recorded approximately 185,000 new truck registrations in 1997. The
industry forecasts an increase of approximately 3% in heavy-duty new truck sales
in 1998. 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.
Year 2000
The efficient operation of the Company's business is dependent on its computer
software programs and operating systems (collectively, "Programs and Systems").
These Programs and Systems are used in several key areas of the Company's
business, including information management services and financial reporting, as
well as in various administrative functions. The
49
<PAGE> 50
Company has been evaluating its Programs and Systems to identify potential year
2000 compliance problems, as well as manual processes, external interfaces with
customers, and services supplied by vendors to coordinate year 2000 compliance
and conversion. The year 2000 problem refers to the limitations of the
programming code in certain existing software programs to recognize date
sensitive information for the year 2000 and beyond. Unless modified prior to the
year 2000, such systems may not properly recognize such information and could
generate erroneous data or cause a system to fail to operate properly.
Based on current information, the Company expects to attain year 2000
compliance and institute appropriate testing of its modifications and
replacements in a timely fashion and in advance of the year 2000 date change. It
is anticipated that modification or replacement of the Company's Programs and
Systems will be performed in-house by Company personnel. The Company believes
that, with modifications to existing software and conversions to new software,
the year 2000 problem will not pose a significant operational problem for the
Company. However, because most computer systems are, by their very nature,
interdependent, it is possible that non-compliant third party computers may not
interface properly with the Company's computer systems. The Company could be
adversely affected by the year 2000 problem if it or unrelated parties fail to
successfully address this issue. Management of the Company currently anticipates
that the expenses and capital expenditures associated with its year 2000
compliance project will not have a material effect on its financial position or
results of operations.
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.
50
<PAGE> 51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C>
Report of Independent Public Accountants 52
Consolidated Balance Sheets as of December 31, 1996 and 1997. 53
Consolidated Statements of Income for the years ended December 31, 1995, 1996 and 1997. 54
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1996 and 1997. 56
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997. 57
Notes to Consolidated Financial Statements 58
</TABLE>
51
<PAGE> 52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Rush Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Rush
Enterprises, Inc. (a Texas corporation), and subsidiaries as of December 31,
1996 and 1997, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rush Enterprises, Inc., and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Antonio, Texas
February 20, 1998
52
<PAGE> 53
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(In Thousands, Except Shares and Per Share Amounts)
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 21,507 $ 19,816
Accounts receivable, net 23,064 20,894
Inventories 36,688 66,757
Prepaid expenses and other 1,503 381
-------- --------
Total current assets 82,762 107,848
PROPERTY AND EQUIPMENT, net 23,222 34,158
OTHER ASSETS, net 3,233 13,472
-------- --------
Total assets $109,217 $155,478
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Floor plan notes payable $ 42,228 $ 63,268
Current maturities of long-term debt 2,115 2,439
Advances outstanding under lines of credit 20 20
Trade accounts payable 5,157 5,751
Accrued expenses 8,566 12,556
Note payable to shareholder -- 5,450
-------- --------
Total current liabilities 58,086 89,484
-------- --------
LONG-TERM DEBT, net of current maturities 13,412 22,742
DEFERRED INCOME TAXES, net 1,027 1,180
COMMITMENTS AND CONTINGENCIES (Note 17)
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares
outstanding in 1996 and 1997 -- --
Common stock, par value $.01 per share; 25,000,000 shares authorized; 6,643,730
shares outstanding in 1996 and 1997 (Note 3) 66 66
Additional paid-in capital 33,342 33,342
Retained earnings 3,284 8,664
-------- --------
Total shareholders' equity 36,692 42,072
-------- --------
Total liabilities and shareholders' equity $109,217 $155,478
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
53
<PAGE> 54
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
New and used truck sales $ 192,949 $ 258,613 $ 290,495
Parts and service 53,368 64,505 78,665
Construction equipment sales -- -- 7,518
Lease and rental 10,058 13,426 14,761
Finance and insurance 3,980 5,855 6,026
Other 1,279 1,262 1,904
--------- --------- ---------
Total revenues 261,634 343,661 399,369
COST OF PRODUCTS SOLD 219,059 289,143 334,583
--------- --------- ---------
GROSS PROFIT 42,575 54,518 64,786
SELLING, GENERAL AND ADMINISTRATIVE 31,238 40,552 50,618
DEPRECIATION AND AMORTIZATION 1,846 2,416 2,977
--------- --------- ---------
OPERATING INCOME 9,491 11,550 11,191
--------- --------- ---------
INTEREST INCOME (EXPENSE):
Interest income -- 1,118 1,155
Interest expense 2,886 4,171 3,668
--------- --------- ---------
Total interest expense, net 2,886 3,053 2,513
--------- --------- ---------
MINORITY INTEREST 162 -- --
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 6,443 8,497 8,678
--------- --------- ---------
PROVISION FOR INCOME TAXES -- 2,295 3,298
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 6,443 6,202 5,380
--------- --------- ---------
DISCONTINUED OPERATIONS:
Operating loss (224) -- --
Gain on disposal 1,785 -- --
--------- --------- ---------
INCOME FROM DISCONTINUED OPERATIONS 1,561 -- --
--------- --------- ---------
NET INCOME $ 8,004 $ 6,202 $ 5,380
========= ========= =========
</TABLE>
54
<PAGE> 55
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE (Note 15):
Net income loss before discontinued operations $ 1.50 $ 1.11 $ .81
Income from discontinued operations .36 - -
---------- ---------- ----------
Net income per common share $ 1.86 $ 1.11 $ .81
========== ========== ==========
UNAUDITED PRO FORMA DATA (Note 5):
Income from continuing operations before income taxes $ 6,443 $ 8,497
Pro forma adjustments to reflect federal and state income taxes 2,448 3,229
---------- ----------
Pro forma income from continuing operations after provision for income
taxes $ 3,995 $ 5,268
========== ==========
Pro forma basic and diluted income from continuing operations per share $ .93 $ .94
========== ==========
Weighted average shares outstanding used in the pro forma basic and
diluted income from continuing operations per share calculation 4,297 5,590
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
55
<PAGE> 56
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In Thousands)
<TABLE>
<CAPTION>
Common Stock,
Rush Enterprises, Inc.
------------------------
Shares Additional
Issued and $.01 Paid-In Retained
Outstanding Par Value Capital Earnings
----------- --------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994 3,750 $ 38 $ 735 $ 3,603
NET INCOME -- -- -- 8,004
DIVIDENDS DECLARED -- -- -- (4,695)
-------- -------- -------- --------
BALANCE, December 31, 1995 3,750 38 735 6,912
NET INCOME, January 1, 1996, through June 11, 1996 -- -- -- 2,918
DIVIDENDS DECLARED -- -- -- (8,559)
REORGANIZATION FROM S CORPORATION TO C CORPORATION
-- -- 1,271 (1,271)
OPTIONS EXERCISED 19 -- 205 --
ISSUANCE OF COMMON STOCK, net of issuance costs 2,875 28 31,131 --
NET INCOME, June 12, 1996, through December 31, 1996 -- -- -- 3,284
-------- -------- -------- --------
BALANCE, December 31, 1996 6,644 66 33,342 3,284
NET INCOME -- -- -- 5,380
-------- -------- -------- --------
BALANCE, December 31, 1997 6,644 $ 66 $ 33,342 $ 8,664
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
56
<PAGE> 57
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In Thousands)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 6,443 $ 6,202 $ 5,380
Adjustments to reconcile net income from continuing operations to net
cash provided by (used in) operating activities- net of acquisitions
Depreciation and amortization 1,846 2,416 2,977
Gain on sale of property and equipment -- -- (305)
Provision for deferred income tax expense -- 1,027 153
Minority interest 162 -- --
Change in accounts receivable, net (7,407) (6,653) 2,170
Change in inventories (10,591) (171) (6,658)
Change in other assets, net 18 (1,237) 1,122
Change in trade accounts payable 599 (2,434) 594
Change in accrued expenses 2,678 959 3,872
-------- -------- --------
Net cash provided by (used in) continuing operations (6,252) 109 9,305
Net cash provided by discontinued operations 785 -- --
-------- -------- --------
Net cash provided by (used in) operating activities (5,467) 109 9,305
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (6,311) (8,491) (10,194)
Proceeds from the sale of property and equipment 1,229 682 581
Acquisitions of dealerships and leasing operations (2,690) -- (36,068)
Proceeds from the sale of discontinued operations 3,601 -- --
Purchase of minority interest (435) -- --
Change in other assets (27) (326) (457)
-------- -------- --------
Net cash used in investing activities (4,633) (8,135) (46,138)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock, net of issuance costs -- 31,364 --
Proceeds from long-term debt 9,629 3,150 21,053
Principal payments on long-term debt (6,811) (4,900) (6,951)
Draws (payments) on floor plan notes payable, net 13,053 7,934 21,040
Draws (payments) on lines of credit, net (850) 10 --
Dividends paid (3,623) (10,174) --
-------- -------- --------
Net cash provided by financing activities 11,398 27,384 35,142
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,298 19,358 (1,691)
CASH AND CASH EQUIVALENTS, beginning of year 851 2,149 21,507
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 2,149 $ 21,507 $ 19,816
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 2,552 $ 4,254 $ 3,378
======== ======== ========
Income taxes $ -- $ 1,332 $ 1,572
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
57
<PAGE> 58
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND OPERATIONS:
Rush Enterprises, Inc. (the Company), was incorporated in June 1996 under the
laws of the State of Texas.
The Company, founded in 1965, now operates a Heavy Duty Truck segment and a
Construction Equipment segment. The Heavy Duty Truck segment operates a regional
network of 17 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 financial
services, including assisting in the financing of new and used truck purchases,
insurance products and truck leasing and rentals. The Company's truck centers
are located in areas on or near major highways in Texas, California, Colorado,
Oklahoma and Louisiana. The Construction Equipment segment, formed during 1997,
operates a full-service John Deere dealership that serves the Houston, Texas
Metropolitan and surrounding areas. Dealership operations include the retail
sale of new and used equipment, after-market parts and service facilities,
equipment rentals, and the financing of new and used equipment (see note 20).
In February 1994, the Company acquired a 90 percent interest in South Coast
Peterbilt (South Coast) and Translease-California. In August 1995, the Company
purchased the remaining 10 percent minority interest (see note 18).
In March 1995, the Company sold its Rush Pontiac-GMC dealership to a third
party. Rush Pontiac-GMC sold passenger automobiles and small- to medium-used
trucks to the general public. The results of operations of this division have
been presented as discontinued operations for the year ended December 31, 1995
(see Note 4).
In December 1995, the Company purchased substantially all the assets of Kerr
Consolidated, Inc. (Kerr), and began operations of Oklahoma Trucks, Tulsa Trucks
and Translease-Oklahoma. Kerr's primary line of business is the sale of new
Peterbilt and used heavy-duty trucks, parts, leasing and service (see note 18).
In March 1997, the Company purchased substantially all the assets of Denver
Peterbilt, Inc. which consisted of two full-service dealerships in Denver and
Greely, Colorado. Denver Peterbilt, Inc.'s primary line of business is the sale
of new Peterbilt and used heavy-duty trucks, parts, leasing and service (see
note 18).
In October 1997, the Company developed a new construction equipment division,
Rush Equipment Centers, and purchased substantially all the assets of the
Houston, Texas John Deere Construction Equipment Dealership from C. Jim Stewart
& Stevenson, Inc. Rush Equipment Center's primary line of business is the sale
and rental of new John Deere and used construction equipment, parts and service.
As part of the corporate reorganization on June 12, 1996 (see Note 3),
Associated Acceptance, Inc. (Associates), came under the control of the Company
and, thus, 100 percent of the financial position and results of operations of
Associates has been included in the Company's consolidated financial statements
as of December 31, 1996 and 1997. The Company has restated 1994 and 1995's
shareholders' equity to reflect Associates as part of the Company's consolidated
shareholders' equity consistent with the 1996 and 1997 financial statement
presentation.
The restatement was not material to the Company's shareholders' equity.
All significant interdivision and intercompany accounts and transactions have
been eliminated in consolidation. Certain prior period amounts have been
reclassified for comparative purposes.
58
<PAGE> 59
2. SIGNIFICANT ACCOUNTING POLICIES:
Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined
by specific identification for new and used truck and construction equipment
inventory and by utilizing the first-in, first-out methods for tires, parts and
accessories.
Property and Equipment
Property and equipment are being depreciated over their estimated useful lives.
Leasehold improvements are amortized over the useful life of the improvement, or
the term of the lease, whichever is shorter. Both the straight-line and double
declining-balance methods of depreciation are used. The cost, accumulated
depreciation and amortization and estimated useful lives are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31
------------------------- Estimated
1996 1997 Life (Years)
---------- ---------- ------------
<S> <C> <C> <C>
Land $ 4,714 $ 6,731 -
Buildings and improvements 8,004 13,647 31 - 39
Leasehold improvements 1,569 3,467 7 - 10
Machinery and shop equipment 3,035 4,531 5 - 7
Furniture and fixtures 2,907 5,159 5 - 7
Transportation equipment 3,792 4,563 2 - 5
Leased vehicles 4,769 3,594 3 - 7
Accumulated depreciation and amortization (5,568) (7,534)
-------- --------
$ 23,222 $ 34,158
======== ========
</TABLE>
Allowance for Doubtful Receivables
and Repossession Losses
The Company provides an allowance for doubtful receivables and repossession
losses after considering historical loss experience and other factors, which
might affect the collectibility of accounts receivable and the ability of
customers to meet their obligations on finance contracts sold by the Company.
Other Assets
Other assets primarily consist of goodwill related to acquisitions, of
approximately $2.8 million and $12.7 million, as of December 31, 1996 and 1997,
respectively , and long-term deposits. The goodwill is being amortized on a
straight-line basis over an estimated useful life of 30 years. Accumulated
amortization at December 31, 1996 and 1997, was approximately $140,000 and
$483,000, respectively. Periodically, the Company assesses the appropriateness
of the asset valuations of goodwill and the related amortization period.
59
<PAGE> 60
Income Taxes
Effective with the corporate reorganization on June 12, 1996 (see Note 3), 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.
Revenue Recognition Policies
Income on the sale of vehicles and construction equipment (collectively,
"unit")is recognized when the seller and customer execute a purchase contract
and there are no significant uncertainties related to financing or delivery.
Finance income related to the sale of a unit is recognized over the period of
the respective finance contract on the effective interest rate method if the
finance contract is retained by the Company. During 1995, 1996 and 1997, no
finance contracts were retained for any significant length of time by the
Company but were generally sold, with limited recourse, to certain finance
companies concurrent with the sale of the related unit. Gain or loss is
recognized by the Company upon the sale of such finance contracts to the finance
companies, net of a provision for estimated repossession losses and early
repayment penalties. Lease and rental income is recognized over the period of
the related lease or rental agreement. Parts and services revenue is earned at
the time the Company sells the parts to its customers, or at the time the
Company completes the service work order related to service provided to the
customer's unit.
Statement of Cash Flows
Cash and cash equivalents generally consist of cash and other money market
instruments. The Company considers any temporary investments that mature in
three months or less when purchased to be cash equivalents for reporting cash
flows.
Noncash activities during the periods indicated were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Liabilities incurred in connection with property and equipment
acquisitions $ 2,022 $ 2,901 $ -
Liabilities incurred in connection with acquisitions of
dealerships and leasing operations 3,550 - 2,063
Assignment of debt in connection with the disposal of property
and equipment - - 1,061
</TABLE>
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June 1996 (SFAS 125).
This statement provides accounting and reporting standards for, among other
things, the transfer and servicing of financial assets, such as factoring
receivables with recourse. This statement is effective for transfers and
servicing of financial assets occurring after December 31, 1996, and is to be
applied prospectively. The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" (SFAS 127). SFAS 127 moves forward
some, but not all, of the provisions of SFAS 125 to December 31, 1997. Earlier
or retroactive application is not permitted. The Company believes the adoption
of this statement will not have an impact on the financial condition or results
of operations of the Company.
60
<PAGE> 61
3. INITIAL PUBLIC OFFERING AND
CORPORATE REORGANIZATION:
The Company filed a Registration Statement with the Securities and Exchange
Commission for an underwritten offering of 2,875,000 shares of common stock,
including underwriters' overallotment option, which became effective on June 12,
1996 (the Offering). The Company used the net proceeds of the Offering to retire
certain debt obligations, fund potential acquisition opportunities which may
arise in the future and for general corporate purposes.
As part of the Offering on June 12, 1996, 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 $8.6 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.
The weighted average number of shares of common stock outstanding as of December
31, 1996 and 1997, was 5,590,270 and 6,643,730, respectively.
Dividends declared, paid or payable for the years ended December 31, 1995 and
1996, were related to the Company's sole shareholder prior to the reorganization
and Offering.
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.
4. DISCONTINUED OPERATIONS:
In March 1995, the Company sold its Pontiac-GMC Truck division and, therefore,
has accounted for these operations as discontinued operations. Under the terms
of the sales agreement, the Buyer purchased the new car and truck inventory. The
Company received approximately $3,601,000 for the sale of the dealership.
The results of the division's operations and cash flows have been classified as
discontinued operations for the year ended December 31, 1995 in the consolidated
statements of income and cash flows. All assets and liabilities of the
Pontiac-GMC Truck division were sold prior to December 31, 1995.
Sales revenues applicable to Rush Pontiac-GMC was $6,435,000 for the year ended
December 31, 1995.
61
<PAGE> 62
5. 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 have been determined assuming that the Company had been
taxed as a C corporation for federal and certain state income tax purposes since
January 1, 1995.
Pro forma income from continuing operations per share had been computed using
the weighted average number of common shares outstanding of the Company.
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 as of December
31, 1995.
6. SUPPLIER AND CUSTOMER CONCENTRATION:
Major Suppliers and Dealership Agreements
The Company has entered into dealership agreements with various companies
(Distributors). These agreements are nonexclusive agreements that allow the
Company to stock, sell at retail and service trucks and products of the
Distributors in the Company's defined market. The agreements allow the Company
to use the Distributor's name, trade symbols and intellectual property and
expire as follows:
<TABLE>
<CAPTION>
Distributor Expiration Dates
----------- ----------------
<S> <C>
PACCAR March 2000 to
October 2000
GMC October 2000
Volvo March 2000
John Deere Indefinite
</TABLE>
These agreements impose a number of restrictions and obligations on the Company,
including restrictions on a change in control of the Company and the maintenance
of certain required levels of working capital. Violation of such restrictions
could result in the loss of the Company's right to purchase the Distributor's
products and use the Distributor's trademarks. As of December 31, 1997, the
Company's management believes it was in compliance with all the restrictions of
its dealership agreements.
The Company purchases most of its new vehicles and parts from PACCAR, the maker
of Peterbilt trucks and parts, at prevailing prices charged to all franchised
dealers. Sales of new Peterbilt trucks accounted for 95 and 98 percent of the
Company's new vehicle sales for the years ended December 31, 1996 and 1997,
respectively.
The Company purchases most of its new construction equipment and parts from John
Deere, at prevailing prices charged to all franchised dealers. Sales of new John
Deere equipment accounted for 99 percent of the Company's new equipment sales
for the year ended December 31, 1997.
Primary Lenders
The Company purchases its new and used truck and construction equipment
inventories with the assistance of floor plan financing programs offered by
various financial institutions and John Deere. The financial institution used
for truck inventory purchases also provides the Company with a line of credit
which allows borrowings of up to $8,000,000 and other variable interest rate
notes. The loan agreement with the financial institution, used for truck
inventory purchases, provides that such agreement may be terminated at the
option of the lender with notice of 120 days.
The loan agreement with the financial institution used primarily for
construction equipment purchases expires in September 1998. Additionally,
financing is provided by John Deere pursuant to the Company's equipment
dealership agreement. Furthermore, the agreements also provide that the
occurrence of certain events will be considered events of default. In the event
that the Company's financing becomes insufficient, or its relationship
terminates
62
<PAGE> 63
with the current primary lenders, the Company would need to obtain similar
financing from other sources. Management believes it can obtain additional floor
plan financing or alternative financing if necessary. (See Note 9.)
Concentrations of Credit Risks
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable.
The Company places its cash and cash equivalents with what it considers to be
quality financial institutions. At December 31, 1997, the Company had deposits
in excess of federal insurance totaling approximately $1,382,000.
Concentrations of credit risk with respect to trade receivables are reduced
because a large number of geographically diverse customers make up the Company's
customer base, thus, spreading the trade credit risk. A majority of the
Company's business, however, is concentrated in the United States heavy-duty
trucking and construction equipment markets and related aftermarkets. The
Company controls credit risk through credit approvals and by selling certain
trade receivables without recourse. Related to the Company's finance contracts,
after the finance contract is entered into, the Company generally sells the
contracts to a third party. The finance contracts are sold both with and without
recourse, but the annual amount of recourse losses which can be put to the
Company is contractually limited. (See note 17.) Historically, bad debt expense
associated with the Company's accounts receivable and finance contracts has not
been material.
7. ACCOUNTS RECEIVABLE:
The Company's accounts receivable, net, consisted of the following: (in
thousands).
<TABLE>
<CAPTION>
December 31,
1996 1997
---- ----
<S> <C> <C>
Trade accounts receivable from sale of vehicles and
construction equipment $ 19,771 $ 16,042
Other trade receivables 1,673 2,605
Warranty claims 1,610 1,486
Other accounts receivable 617 1,361
Less- Allowance for doubtful receivables and repossession
losses (607) (600)
--------- ---------
Total $ 23,064 $ 20,894
========= =========
</TABLE>
For the years ended December 31, 1995, 1996 and 1997, the Company had sales to
one of its related parties of approximately $770,000, $939,000, and $0,
respectively.
8. INVENTORIES:
The Company's inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1997
---- ----
<S> <C> <C>
New vehicles $ 17,514 $ 15,722
Used vehicles 7,926 8,884
Construction equipment - new - 11,457
Construction equipment - used - 659
Construction equipment - rental - 12,970
Parts and accessories 11,248 17,065
-------- --------
Total $ 36,688 $ 66,757
======== ========
</TABLE>
63
<PAGE> 64
9. FLOOR PLAN NOTES PAYABLE AND LINES OF CREDIT:
Floor Plan Notes Payable
Floor plan notes are financing agreements to facilitate the Company's purchase
of new and used trucks and construction equipment. These notes are
collateralized by the inventory purchased and accounts receivable arising from
the sale thereof. The Company's floor plan notes have interest rates at prime
less a percentage rate as determined by the finance provider, as defined in the
agreements. The interest rates applicable to these agreements were 7.75 to 8.0
percent as of December 31, 1997. The amounts borrowed under these agreements are
due when the related truck or construction equipment inventory (collateral) is
sold and the sales proceeds are collected by the Company, or in the case of
construction equipment rentals, when the carrying value of the equipment is
reduced. These lines may be modified, suspended, or terminated by the lender as
described in footnote 6.
The Company's floor plan agreement with its primary truck lender limits the
borrowing capacity based on the number of new and used trucks that may be
financed. As of December 31, 1997, the aggregate amounts of unit capacity for
new and used trucks are 1,046 and 422, respectively, and the availability for
new and used trucks is 704 and 192, respectively.
The Company's floor plan agreement with its primary construction equipment
lender is based on the book value of the Company's construction equipment
inventory. As of December 31, 1997, the aggregate amount of borrowing capacity
with the Company's primary lender, was $20 million, with approximately $19.4
million outstanding. Additional amounts are available under the Company's John
Deere dealership agreement. At December 31, 1997, approximately $7.6 million was
outstanding pursuant to the John Deere dealership agreement.
Amounts of collateral as of December 31, 1997, are as follows (in thousands):
<TABLE>
<S> <C>
Inventories, new and used vehicles and construction
equipment at cost based on specific identification $49,692
Truck and construction equipment sale related accounts
receivable 16,042
Total $ 65,734
========
Floor plan notes payable $ 63,268
========
</TABLE>
Lines of Credit
The Company has a separate line-of-credit agreement with a financial institution
which provides for an aggregate maximum borrowing of $8,000,000, with advances
generally limited to 75 percent of new parts inventory. Advances bear interest
at prime. Advances under the line-of-credit agreement are secured by new parts
inventory. The line-of-credit agreement contains financial covenants. The
Company was in compliance with these covenants at December 31, 1997. Either
party may terminate the agreement with 30 days written notice. As of December
31, 1996 and 1997, advances outstanding under the various line-of-credit
agreements amounted to $20,000. As of December 31, 1997, $7,980,000 was
available for future borrowings. This line is discretionary and may be modified,
suspended or terminated at the election of the lender.
64
<PAGE> 65
10. LONG-TERM DEBT:
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1997
---- ----
<S> <C> <C>
Variable interest rate term notes $ 5,305 $ 1,699
Fixed interest rate term notes 10,222 23,502
Note payable to shareholder -- 5,450
-------- --------
Total debt 15,527 30,651
Less- Current maturities (2,115) (7,909)
-------- --------
$ 13,412 $ 22,742
======== ========
</TABLE>
Note payable to shareholder is a short-term note that is payable on demand and
bears interest equal to one percent per annum less than the rate of interest
received by the Company under its agreement to deposit overnight funds in
interest bearing accounts with one of the Company's floor plan lenders.
As of December 31, 1997, debt maturities are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 7,909
1999 2,285
2000 2,092
2001 3,830
2002 7,167
Thereafter 7,368
--------
$ 30,651
</TABLE>
The Company's variable interest rate notes are with one of the Company's primary
lenders and have an interest rate of prime, which was 8.50 percent at December
31, 1997. Monthly payments of these notes range from $2,708 to $7,917, plus
interest. These notes mature in 2011.
The Company's fixed interest rate notes are primarily with financial
institutions and have interest rates ranging from 7.0 percent to 10.5 percent at
December 31, 1997. Monthly payments on the notes range from $432 to $44,000,
plus interest. Maturities of these notes range from March 1998 to October 2012.
The proceeds from the issuance of the variable and fixed rate notes were used
primarily to acquire land, buildings and improvements, transportation equipment
and leased vehicles. The notes are secured by the assets acquired by the
proceeds of such notes.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
In December 1991, Statement of Financial Accounting Standards No. 107 (SFAS
107), "Disclosures About Fair Value of Financial Instruments," was issued. SFAS
107 requires disclosures of the fair value of financial instruments. The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument held by the Company:
Current assets and current liabilities - The carrying value
approximates fair value due to the short maturity of these items.
65
<PAGE> 66
Long-term debt - The fair value of the Company's long-term debt is
based on secondary market indicators. Since the Company's debt is not
quoted, estimates are based on each obligation's characteristics,
including remaining maturities, interest rate, credit rating,
collateral, amortization schedule and liquidity. The carrying amount
approximates fair value.
12. DEFINED CONTRIBUTION PENSION PLANS:
The Company has a defined contribution pension plan (the Rush Plan) which is
available to all Company employees and the employees of certain affiliates,
except employees of South Coast, a wholly owned subsidiary of the Company. As of
December 31 of every year, each employee who has completed one year of
continuous service is entitled to enter the Rush Plan. Participating employees
may contribute from 2 percent to 10 percent of total gross compensation. The
Company, at its discretion, contributed an amount equal to 25 percent of the
employees' contributions. During the years ended December 31, 1995, 1996 and
1997, the Company incurred expenses of approximately $127,000, $166,000 and
$215,000, respectively, related to the Rush Plan.
South Coast also has a defined contribution pension plan (the South Coast Plan)
which is available to all employees of South Coast. As of January 1 and July 1
of every year, each employee who has completed one year of continuous service is
entitled to enter the South Coast Plan. Participating employees do not
contribute. South Coast, at its discretion, contributes an amount equal to 2.5
percent of the employees' compensation. During the years ended December 31,
1995, 1996 and 1997, South Coast incurred expenses of approximately $166,000,
$185,000 and $151,000, respectively, related to the South Coast Plan.
The Company currently does not provide any postretirement benefits other than
pensions nor does it provide any postemployment benefits.
13. LEASES:
Vehicle Leases
The Company leases vehicles primarily over periods ranging from one to six years
under operating lease arrangements. This equipment is subleased to customers
under various agreements in its own leasing operation. Generally, the Company is
required to incur all operating costs and pay a minimum rental and an excess
mileage charge based on maximum mileage over the term of the lease. Vehicle
lease expenses for the years ended December 31, 1995, 1996 and 1997, were
approximately $3,221,000, $4,354,000 and $4,915,000, respectively.
Minimum rental commitments for noncancelable vehicle leases in effect at
December 31, 1997, are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 5,610
1999 4,833
2000 3,629
2001 2,335
2002 1,852
Thereafter 1,692
--------
Total $ 19,951
========
</TABLE>
66
<PAGE> 67
Customer Vehicle Leases
A Company division leases both owned and leased vehicles to customers primarily
over periods of one to six years under operating lease arrangements. The leases
require a minimum rental and a contingent rental based on mileage. Rental income
during the years ended December 31, 1995, 1996 and 1997, consisted of minimum
payments of approximately $5,262,000, $7,443,000 and $7,978,000, respectively,
and contingent rentals of approximately $1,372,000, $2,018,000 and $1,940,000,
respectively. Minimum lease payments to be received for noncancelable leases and
subleases in effect at December 31, 1997, are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 8,133
1999 6,954
2000 5,213
2001 3,376
2002 2,557
Thereafter 2,382
--------
Total $ 28,615
========
</TABLE>
Other Leases - Land and Buildings
The Company leases various facilities under operating leases which expire at
various times through 2006. Rental expense for the years ended 1995, 1996 and
1997 was $762,000, $937,000 and $1,194,000, respectively. Future minimum lease
payments under noncancelable leases at December 31, 1997, are as follows (in
thousands):
<TABLE>
<S> <C>
1998 $ 706
1999 611
2000 504
2001 335
2002 308
Thereafter 1,208
-------
Total $ 3,672
=======
</TABLE>
14. STOCK OPTIONS AND STOCK PURCHASE WARRANTS:
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), was issued. SFAS 123
defines a fair value based method of accounting for employee stock options or
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. Under the fair
value based method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period of the award, which
is usually the vesting period. However, SFAS 123 also allows entities to
continue to measure compensation costs for employee stock compensation plans
using the intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25). Because the Company has
elected to continue to follow APB 25, SFAS 123 requires disclosure of pro forma
net income and earnings per share as if the new fair value accounting method was
adopted. The Company has presented the pro forma information required by SFAS
123.
In April 1996, the Board of Directors and shareholders adopted the Rush
Enterprises, Inc. Long-Term Incentive Plan (the Incentive Plan). The Incentive
Plan provides for the grant of stock options (which may be nonqualified stock
options or incentive stock options for tax purposes), stock appreciation rights
issued independent of or in tandem with such options (SARs), restricted stock
awards and performance awards.
67
<PAGE> 68
The aggregate number of shares of common stock subject to stock options or SARs
that may be granted to any one participant in any one year under the Incentive
Plan is 100,000 shares. The Company has 500,000 shares of common stock reserved
for issuance upon exercise of any awards granted under the Company's Incentive
Plan.
In connection with the Offering, the Company agreed to issue to the
Representatives of the Underwriters and their designees, for their own accounts,
warrants to purchase an aggregate of 250,000 shares of common stock. The
warrants are exercisable during the four-year period commencing June 12, 1997,
at an exercise price equal to $14.40 per share.
In April 1996, the Company granted options under the Incentive Plan to purchase
an aggregate of 19,403 shares to 18 employees, all of which are fully vested.
On April 8, 1996, the Board of Directors of the Company declared a dividend of
one common share purchase right (a Right) for each share of common stock
outstanding. Each Right entitles the registered holder to purchase from the
Company one share of common stock at a price of $35.00 per share (the Purchase
Price). The Rights are not exercisable until the distribution date, as defined.
The Rights will expire on April 7, 2006 (the Final Expiration Date), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company.
In March 1997, the Company granted options under the Incentive Plan to purchase
an aggregate of 103,013 shares of common stock to employees. Each option granted
shall become exercisable in three annual installments beginning on the third
anniversary of the date of grant. The options are exercisable at a price equal
to the fair value of the Company's common stock at the date of grant.
During 1997, the Board of Directors and shareholders adopted the Rush
Enterprises, Inc. 1997 Non-Employee Director Stock Option Plan (the Director
Plan). The Director Plan is designed to attract and retain highly qualified
non-employee directors, reserving 100,000 shares of common stock for issuance
upon exercise of any awards granted under the Plan. Under the terms of this
plan, each non-employee director received options to purchase 10,000 shares as
of the date of adoption or on their respective date of election, all of which
are fully vested and are exercisable immediately, and expire ten years from the
date of grant. During the year ended December 31, 1997, 30,000 options were
granted and exercisable at a price equal to the fair values of the Company's
common stock at the dates of grant. None of these options have been exercised as
of December 31, 1997.
A summary of the Company's stock option activity, and related information for
the years ended December 31, 1996 and 1997 follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
<S> <C> <C> <C> <C>
Outstanding - beginning of year -- $ -- $ -- --
Granted 19,403 10.80 133,013 8.52
Exercised 18,730 10.80 -- --
Forteited 673 10.80 -- --
-------- ---------- -------- --------
Outstanding - end of year -- -- 133,013 --
-------- ---------- -------- --------
Exercisable at end of year -- $ -- $ 30,000 $ 8.13
-------- ---------- -------- --------
Weighted average fair value of options
granted during the year $ -- $ 3.67
</TABLE>
68
<PAGE> 69
The following table summarizes the information about the Company's options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
-------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$7.13 - 8.63 133,013 9.19 $8.52 30,000 $8.13
</TABLE>
If the Company had adopted the fair value accounting method under SFAS 123, pro
forma net income for 1996 and 1997 would be $5,268 million and $5,265 million,
respectively, and pro forma basic and dilutive earnings per share for 1996 and
1997 would be $.94 and $.79, respectively. The fair value of these options was
estimated using a Black-Scholes option pricing model with a risk-free interest
rate of 5.5%, a volatility factor of .133, a dividend yield of 0%, and an
expected option life of seven years.
In October 1997, the Company issued warrants to purchase an aggregate of 171,875
shares of common stock to C. Jim Stewart & Stevenson in connection with the
purchase of the assets of the John Deere construction equipment store. The
warrants are exercisable during the five-year period commencing October 6, 1998,
at an exercise price equal to $12.00 per share. None of these warrants have been
exercised as of December 31, 1997. The fair value of these warrants are not
material to the statement of financial position.
15. EARNINGS PER SHARE
Earnings per share for all periods have been restated to reflect the adoption of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which
established standards for computing and presenting earnings per share ("EPS")
for entities with publicly held common stock or potential common stock (SFAS
128). This statement requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures.
Basic EPS were computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Diluted EPS differs from
basic EPS due to the assumed conversions of potentially dilutive options that
were outstanding during the period. The following is a reconciliation of the
numerators and the denominators of the basic and diluted per-share computations
for net income.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
------------------------------------
Income Shares Per-Share
------ ------ ---------
(Numerator) (Denominator) Amount
--------- ------------ ------
<S> <C> <C> <C>
BASIC EPS
Net income available to common shareholders $5,380,000 6,643,730 $.81
Effect of Potentially Dilutive Securities
Stock options 1,503
-----
DILUTED EPS
Net income available to common shareholders including
assumed conversions $5,380,000 6,645,233 $.81
</TABLE>
There were no potentially dilutive securities outstanding as of December 31,
1995 and 1996.
69
<PAGE> 70
16. INCOME TAXES:
Prior to the Offering of the Company's common stock, the Company maintained the
status of S corporation for federal and state income tax purposes. As an S
corporation, the Company was generally not responsible for income taxes.
Upon the closing of the Offering, the Company's S corporation election
terminated and the Company was reorganized as described in Note 3. Accordingly,
the Company became subject to federal and state income taxes from that date
forward.
Upon the Company's termination of its S corporation status, the Company provided
deferred income taxes for cumulative temporary differences between the tax basis
and financial reporting basis of its assets and liabilities at the date of
termination.
Provision for Income Taxes
The unaudited pro forma provision for income taxes represents the estimated
income taxes on income from continuing operations that would have been reported
under SFAS 109 had the Company been a taxable entity for both state and federal
income tax purposes as of the beginning of the years ended December 31, 1995 and
1996. The pro forma income tax provision for the years ended December 31, 1995
and 1996, and actual tax provision for the years ended December 31, 1996 and
1997, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Pro Forma Actual
--------------- ---------------
1995 1996 1996 1997
---- ---- ---- -----
(Unaudited)
<S> <C> <C> <C> <C>
Current provision-
Federal $ 1,945 $ 2,189 $ 1,002 $ 2,738
State 230 257 266 407
------- ------- ------- -------
2,175 2,446 1,268 3,145
------- ------- ------- -------
Deferred provision-
Federal 245 714 1,035 132
State 28 69 (8) 21
------- ------- ------- -------
273 783 1,027 153
------- ------- ------- -------
Provision for income taxes $ 2,448 $ 3,229 $ 2,295 $3,298
======= ======= ======= ======
</TABLE>
The following summarizes the tax effect of significant cumulative temporary
differences that are included in the net deferred income tax liability as of
December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Differences in depreciation and amortization $ 1,392 $ 1,648
Accruals and reserves not deducted for tax purposes until paid (240) (421)
Other, net (125) (47)
------- -------
$ 1,027 $ 1,180
======= =======
</TABLE>
70
<PAGE> 71
A reconciliation of taxes based on the federal statutory rate of 34 percent and
the unaudited pro forma provisions for income taxes for the years ended December
31, 1995 and 1996 and the actual provisions for income taxes for the years ended
December 31, 1996 and 1997, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Pro Forma Actual
--------------- ----------------
1995 1996 1996 1997
---- ---- ---- -----
(Unaudited)
<S> <C> <C> <C> <C>
Income taxes at the federal statutory rate $2,191 $2,889 $1,897 $2,951
State income taxes, net of federal benefit 170 216 230 286
Other, net 87 124 168 61
------ ------ ------ ------
Provision for income taxes $2,448 $3,229 $2,295 $3,298
====== ====== ====== ======
</TABLE>
17. COMMITMENTS AND CONTINGENCIES:
The Company is contingently liable to finance companies for the notes sold to
such finance companies related to the sale of trucks and construction equipment.
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.
Finance contracts sold during the years ended December 31, 1995, 1996 and 1997,
were $53,165,000, $76,390,000 and $91,445,000, respectively.
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 $25,725. The agreements expire in 1999 through 2001.
18. ACQUISITIONS:
In February 1994, South Coast acquired substantially all of the operations of an
existing Peterbilt truck dealership in Southern California. South Coast was
initially owned 90 percent by the Company and 10 percent was owned by a minority
interest owner. In August 1995, the Company purchased the minority interest in
South Coast. The Company paid approximately $435,000 for the remaining 10
percent ownership interest.
71
<PAGE> 72
The following unaudited pro forma summary presents information as if the Kerr
acquisitions (see note 1), and minority interest in South Coast acquisition and
the sale of the Rush Pontiac-GMC dealership (see Note 4) had occurred at the
beginning of fiscal year 1995. The pro forma information is provided for
information purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the Company. In
preparing the pro forma data, adjustments have been made to reflect the impact
of income tax expense for the respective periods and the weighted average common
shares outstanding used in the computation of income from continuing operations
per share has been increased to reflect the number of shares at the Offering
price necessary to fund repayment of the line of credit drawn to pay the $6
million distribution of undistributed S corporation earnings. The following
summary is for the year ended December 31, 1995 (unaudited) (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
Revenues from continuing operations $ 333,279
=========
Income from continuing operations after pro forma
provision for income taxes $ 4,277
=========
Basic and diluted income from continuing operations per
share $ 1.00
=========
</TABLE>
In March 1997, the Company purchased the assets of Denver Peterbilt, Inc.,
which consisted of two full-service Peterbilt dealerships in Denver and Greeley,
Colorado. The purchase price was approximately $7.9 million, funded by (i) $6.5
million of cash and (ii) $1.4 million of borrowings under the Company's floor
plan financing arrangement with GMAC to purchase new and used truck and parts
inventory. The Company also entered into an agreement whereby the principal of
Denver Peterbilt, Inc. may receive additional amounts based on future sales of
new Peterbilt trucks at the Colorado locations, through March 1999.
The acquisition has been accounted for as a purchase; operations of the business
acquired have been included in the accompanying consolidated financial
statements from the respective date of acquisition. The purchase price has been
allocated based on the fair values of the assets and liabilities at the date of
acquisition as follows (in thousands):
<TABLE>
<S> <C>
Inventories $ 2,140
Property and equipment 104
Accrued expenses (79)
Goodwill 5,750
--------
Total $ 7,915
========
</TABLE>
In October 1997, the Company purchased certain assets and assumed certain
liabilities of C .Jim Stewart & Stevenson, Inc., which consisted of one
full-service John Deere construction equipment dealership in Houston, Texas. The
purchase price was approximately $30.2 million , funded by (i) $4 million of
cash, (ii) $21.1 million of borrowings under the Company's floor plan financing
arrangements, (iii) $3,080,000 in real estate borrowings from a financial
institution, and (iv) a $2,062,500 promissory note payable to the seller. The
Company also issued warrants to purchase an aggregate of 171,875 shares of
common stock to C. Jim Stewart & Stevenson. The warrants are exercisable during
the five-year period commencing October 6, 1998, at an exercise price equal to
$12.00 per share. As the fair value of the warrants was immaterial, it was not
included in the purchase price.
72
<PAGE> 73
The acquisition has been accounted for as a purchase; operations of the business
acquired have been included in the accompanying consolidated financial
statements from the respective date of acquisition. The purchase price has been
allocated based on the fair values of the assets and liabilities at the date of
acquisition as follows (in thousands):
<TABLE>
<S> <C>
Inventories $ 21,271
Property and equipment 4,609
Accrued expenses (39)
Goodwill 4,375
--------
Total $ 30,216
========
</TABLE>
The following unaudited pro forma summary presents information as if the Denver
Peterbilt, Inc. acquisition, and the C. Jim Stewart & Stevenson acquisition had
occurred at the beginning of fiscal years 1996 and 1997. The pro forma
information is provided for information purposes only. It is based on historical
information and does not necessarily reflect the actual results that would have
occurred nor is it necessarily indicative of future results of operations of the
Company. In preparing the pro forma data, adjustments have been made to reflect
the impact of income tax expense for 1996 and the weighted average common shares
outstanding used in the computation of income from operations per share has been
increased to reflect the number of shares at the Offering price necessary to
fund repayment of the line of credit drawn to pay the $6 million distribution of
undistributed S corporation earnings. The following summary is for the years
ended December 31, 1996 and 1997 (unaudited) (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Revenues from operations $ 400,407 $ 434,247
========= =========
Income from operations after pro forma provision for
income taxes $ 3,949 $ 5,361
========= =========
Basic and diluted income from operations per share $ .71 $ .81
========= =========
</TABLE>
73
<PAGE> 74
19. UNAUDITED QUARTERLY FINANCIAL DATA:
(In thousands, except per share amounts.)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
Operating revenues $ 78,671 $ 84,492 $ 87,132 $ 93,366
Operating income 2,392 2,961 3,000 3,197
Income from continuing operations before income taxes 1,452 2,006 2,447 2,592
Pro forma income from continuing operations after provision for
income taxes 880 1,244 1,537 1,607
Pro forma basic and diluted income from continuing operations
per share $.21 $.26 $.23 $.24
1997
Operating revenues $ 82,912 $ 95,772 $102,145 $118,540
Operating income 1,757 2,040 3,210 4,184
Income from operations before income taxes 1,267 1,607 2,673 3,131
Income from operations after provision for income taxes 785 997 1,658 1,940
Pro forma basic and diluted income from continuing operations
per share $.12 $.15 $.25 $.29
</TABLE>
20. SEGMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). This statement requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. The effective
date for SFAS No. 131 is for fiscal years beginning after December 15, 1997,
however, the Company has elected to adopt SFAS No. 131 for the year ended
December 31, 1997.
The Company has two reportable segments: the Heavy Duty Truck segment and the
Construction Equipment segment. The Heavy Duty Truck segment 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; after-market 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. The
Construction Equipment segment, formed during 1997, operates a full-service John
Deere dealership that serves the Houston, Texas Metropolitan and surrounding
areas. Dealership operations include the retail sale of new and used equipment,
after-market parts and service facilities, equipment rentals, and the financing
of new and used equipment. The Company had only one segment prior to the 1997
John Deere acquisition, and all of the 1995 and 1996 results depict only the
Heavy Duty Truck segment.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on income before income taxes not including extraordinary items.
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The Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices. There were
no intersegment sales during the year ended December 31, 1997.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Business units
were maintained through expansion and acquisitions. The following table contains
summarized information about reportable segment profit or loss and segment
assets, for the year ended December 31, 1997: (in thousands)
<TABLE>
<CAPTION>
HEAVY-DUTY CONSTRUCTION
TRUCK EQUIPMENT
SEGMENT SEGMENT ALL OTHER TOTALS
---------- ------------ --------- ------
<S> <C> <C> <C> <C>
Revenues from external
customers $380,437 $ 10,166 $ 8,766 $399,369
Interest revenue 1,155 -- -- 1,155
Interest expense 3,040 408 220 3,668
Depreciation and amortization 2,542 77 358 2,977
Segment profit 8,380 116 182 8,678
Other significant non-cash items:
Segment assets 107,650 39,320 8,508 155,478
Expenditures for segment assets 8,622 242 1,330 10,194
</TABLE>
Revenues from segments below the quantitative thresholds are attributable to
four operating segments of the Company. Those segments include a tire company, a
parts distributor, an insurance company, and a hunting lease operation. None of
those segments has ever met any of the quantitative thresholds for determining
reportable segments.
21. SUBSEQUENT EVENTS:
On March 2, 1998, the Company caused its wholly owned subsidiary, Rush Retail
Centers of Texas, Inc., to acquire the stock of D&D Farm and Ranch Supermarket,
Inc. for approximately $10.5 million, with the purchase price being a
combination of cash and notes payable. The Company will account for the
acquisition as a purchase.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by item 10 of Form 10-K is incorporated herein
by reference to such information included in the Company's Proxy Statement for
the 1998 Annual Meeting of Shareholders, under the captions "Election of
Directors" and "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by item 11 of Form 10-K is incorporated herein
by reference to such information included in the Company's Proxy Statement for
the 1998 Annual Meeting of Shareholders, under the caption "Compensation of
Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by item 12 of Form 10-K is incorporated herein
by reference to such information included in the Company's Proxy Statement for
the 1998 Annual Meeting of Shareholders, under the caption "Principal
Shareholders and Stock Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by item 13 of Form 10-K is incorporated herein
by reference to such information included in the Company's Proxy Statement for
the 1998 Annual Meeting of Shareholders, under the caption "Certain
Transactions."
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Index to Financial Statements
(a) The following documents are filed as part of this Annual Report or are
incorporated by reference as indicated:
1. The following financial statements are included under Item 8:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Income for the years ended December 31, 1995,
1996 and 1997
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997
Notes to Consolidated Financial Statements.
2. The following financial statement schedules are included under Item 14:
Exhibit 11.1 Computation of net income and pro forma earnings per share
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. IDENTIFICATION OF EXHIBIT
- ------- -------------------------
<S> <C>
2.1 Asset Purchase Agreement effective October 6, 1997, among Rush
Equipment Centers of Texas, Inc., Rush Enterprises, Inc., C. Jim
Stewart and Stevenson, Inc., and Stewart and Stevenson Realty Corp.
(incorporated by reference herein to Exhibit 2.1 to the Company's
Current Report on Form 8-K filed October 21, 1997).
3.1. Amended and Restated Articles of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
</TABLE>
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<TABLE>
<S> <C>
3.2. Bylaws of the Registrant, as amended (incorporated herein by
reference to Exhibit 3.2 of the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
4.1. Specimen of certificate representing Common Stock, $.01 par value,
of the Registrant (incorporated herein by reference to Exhibit 4.1
of the Company's Registration Statement No. 333-03346 on Form S-1
filed April 10, 1996).
4.2. Form of Representatives' Warrant Agreement, including form of
Representatives' Warrant (incorporated herein by reference to
Exhibit 4.2 of the Company's Registration Statement No. 333-03346 on
Form S-1 filed April 10, 1996).
4.3. Rights Agreement dated April 8, 1996 between Rush Enterprises, Inc.
and American Stock Transfer & Trust Company, Trustee (incorporated
herein by reference to Exhibit 4.3 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.1. Form of Dealer Sales and Service Agreement (heavy-duty truck) dated
October 5, 1995, between Peterbilt Motors Company and Rush
Enterprises, Inc. dba San Antonio Peterbilt-GMC Truck, Inc.
(incorporated herein by reference to Exhibit 10.1 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.2. Form of Dealer Sales and Service Agreement (medium-duty truck) dated
October 5, 1995 between Peterbilt Motors Company and Rush
Enterprises, Inc. dba San Antonio Peterbilt -- GMC Trucks, Inc.
(incorporated herein by reference to Exhibit 10.7 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.3. GMC Truck Division Dealer Sales and Service Agreement dated July 9,
1992 between General Motors Corporation, GMC Truck Division and Rush
Enterprises, Inc. dba Rush Pontiac -- GMC Truck Center (incorporated
herein by reference to Exhibit 10.13 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.3. GMC Truck Division Dealer Sales and Service Agreement dated January
17, 1996 between General Motors Corporation, GMC Truck Division and
Rush Enterprises, Inc. dba Oklahoma Trucks, Inc. (incorporated
herein by reference to Exhibit 10.14 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.4. Dealer Sales and Service Agreement dated January 26, 1996 between
Volvo GM Heavy Truck Corporation and Rush Enterprises, Inc.
(incorporated herein by reference to Exhibit 10.15 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.5. Franchise Agreement dated July 28, 1994 between PACCAR Leasing
Corporation and Rush Enterprises, Inc. dba Translease Corp.
(incorporated herein by reference to Exhibit 10.16 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.6. Franchise Agreement Addendum dated December 1, 1995 between PACCAR
Leasing Corporation and Rush Enterprises, Inc. dba Translease Corp.
(incorporated herein by reference to Exhibit 10.17 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.7. Agreement for Acquisition of Secured Retail Installment Paper dated
March 14, 1996 between PACCAR Financial Corp. and South Coast
Peterbilt (incorporated herein by reference to Exhibit 10.18 of the
Company's Registration Statement No. 333-03346 on Form S-1 filed
April 10, 1996).
</TABLE>
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<TABLE>
<S> <C>
10.8. Letter Agreement dated January 5, 1996 between Rush Enterprises,
Inc. for South Coast Peterbilt and PACCAR Financial Corp.
(incorporated herein by reference to Exhibit 10.19 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.9. Alternative Reserve Program Letter Agreement dated February 1, 1994
between Associates Commercial Corporation and Rush Enterprises, Inc.
dba San Antonio Truck Sales & Service, Inc., Houston Peterbilt,
Inc., Lufkin Peterbilt Inc. and South Coast Peterbilt (incorporated
herein by reference to Exhibit 10.20 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.10. Alternative Reserve Program Letter Agreement dated January 1, 1996
between Associates Commercial Corporation and Rush Enterprises, Inc.
(incorporated herein by reference to Exhibit 10.21 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.11. Dealer Agreement for General Motors Retail Truck Financing Plan for
GMC and Chevrolet Dealers effective August 1, 1984 between Rush
Enterprises, Inc. dba San Antonio Truck Sales & Service, Inc. and
Associates Commercial Corporation (incorporated herein by reference
to Exhibit 10.22 of the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
10.12. Dealer Agreement dated November 13, 1986 between Associates
Commercial Corporation and Rush Enterprises, Inc. dba San Antonio
Truck Sales & Service, Inc. (incorporated herein by reference to
Exhibit 10.23 of the Company's Registration Statement No. 333-03346
on Form S-1 filed April 10, 1996).
10.13. Associates/Rush Enterprises, Inc. Dealer Agreement Addendum dated
December 8, 1986 to Dealer Agreement dated November 13, 1986 between
Associates Commercial Corporation and Rush Enterprises, Inc. dba San
Antonio Truck Sales & Service, Inc. (incorporated herein by
reference to Exhibit 10.24 of the Company's Registration Statement
No. 333-03346 on Form S-1 filed April 10, 1996).
10.14. Form of Dealer Agreement dated January 13, 1988 between Associates
Commercial Corporation and Rush Enterprises, Inc. dba Houston
Peterbilt, Inc. (incorporated herein by reference to Exhibit 10.25
of the Company's Registration Statement No. 333-03346 on Form S-1
filed April 10, 1996).
10.15. Intentionally left blank.
10.16. Form of Peterbilt Distributor Limited Liability Truck Financing
Agreement dated July 21, 1983 between Associates Commercial
Corporation and Rush Enterprises, Inc. dba San Antonio Truck Sales &
Service, Inc. (incorporated herein by reference to Exhibit 10.28 of
the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
10.17. Dealer Financing Agreement dated July 30, 1993 between Interstate
Billing Service, Inc. and Rush Enterprises, Inc. dba Translease
Corp. (incorporated herein by reference to Exhibit 10.32 of the
Company's Registration Statement No. 333-03346 on Form S-1 filed
April 10, 1996).
10.18. Credit Balance Agreement dated April 3, 1995 between General Motors
Acceptance Corporation and Rush Enterprises, Inc. dba Rush
Pontiac-GMC Truck Center, San Antonio Peterbilt, ARK-LA-TEX
Peterbilt, Houston Peterbilt, Lufkin Peterbilt, Laredo Peterbilt,
Hummer of South Texas and South Coast Peterbilt (incorporated herein
by reference to Exhibit 10.33 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
</TABLE>
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<TABLE>
<S> <C>
10.19. Letter dated March 11, 1996 from General Motors Acceptance
Corporation to Rush Enterprises, Inc. (incorporated herein by
reference to Exhibit 10.34 of the Company's Registration Statement
No. 333-03346 on Form S-1 filed April 10, 1996).
10.20. Loan Agreement dated June 19, 1995 between General Motors Acceptance
Corporation and Rush Enterprises, Inc. dba San Antonio Peterbilt-GMC
Truck, Inc. (incorporated herein by reference to Exhibit 10.35 of
the Company's Registration Statement No. 333-03346 on Form S-1 filed
April 10, 1996).
10.21. Promissory Note dated June 19, 1995, in the original principal
amount of $5,000,000, payable by Rush Enterprises, Inc. dba San
Antonio Peterbilt-GMC Truck, Inc. to General Motors Acceptance
Corporation (incorporated herein by reference to Exhibit 10.36 of
the Company's Registration Statement No. 333-03346 on Form S-1 filed
April 10, 1996).
10.22. Wholesale Security Agreement dated June 19, 1995 between General
Motors Acceptance Corporation and Rush Enterprises, Inc. dba San
Antonio Peterbilt-GMC Truck, Inc. (incorporated herein by reference
to Exhibit 10.37 of the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
10.23. Agreement Amending the Wholesale Security Agreement dated June 19,
1995 between General Motors Acceptance Corporation and Rush
Enterprises, Inc. dba San Antonio Peterbilt-GMC Truck, Inc.
(incorporated herein by reference to Exhibit 10.38 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.24. Assignment of DPP Vehicle Proceeds dated June 19, 1995 between
General Motors Acceptance Corporation and Rush Enterprises, Inc. dba
San Antonio Peterbilt-GMC Truck, Inc. (incorporated herein by
reference to Exhibit 10.39 of the Company's Registration Statement
No. 333-03346 on Form S-1 filed April 10, 1996).
10.25. Guaranty Agreement dated June 19, 1995 by W. Marvin Rush on behalf
of Rush Enterprises, Inc. dba San Antonio Peterbilt-GMC Truck, Inc.
and accepted by General Motors Acceptance Corporation (incorporated
herein by reference to Exhibit 10.40 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.26. Revolving Line of Credit Loan and Security Agreement dated December
1, 1995 between General Motors Acceptance Corporation and Rush
Enterprises, Inc. dba Tulsa Trucks, Inc. in the maximum principal
amount of $1,100,000.00 (incorporated herein by reference to Exhibit
10.41 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.27. Promissory Note dated December 1, 1995, in the original principal
amount of $1,100,000.00, payable by Rush Enterprises, Inc. dba
Oklahoma Trucks, Inc. to General Motors Acceptance Corporation
(incorporated herein by reference to Exhibit 10.42 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
</TABLE>
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<TABLE>
<S> <C>
10.28. Wholesale Security Agreement dated November 30, 1995 between General
Motors Acceptance Corporation and Rush Enterprises, Inc. dba
Oklahoma Trucks, Inc. (incorporated herein by reference to Exhibit
10.43 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.29. Agreement Amending the Wholesale Security Agreement and
Conditionally Authorizing the Sale of New Floor Plan Vehicles on a
Delayed Payment Privilege Basis dated November 30, 1995 between
General Motors Acceptance Corporation and Rush Enterprises, Inc. dba
Oklahoma Trucks, Inc. (incorporated herein by reference to Exhibit
10.44 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.30. Guaranty dated November 30, 1995 by W. Marvin Rush on behalf of Rush
Enterprises, Inc. dba Oklahoma Trucks, Inc. and accepted by General
Motors Acceptance Corporation (incorporated herein by reference to
Exhibit 10.45 of the Company's Registration Statement No. 333-03346
on Form S-1 filed April 10, 1996).
10.31. Revolving Line of Credit Loan and Security Agreement dated December
1, 1995 between General Motors Acceptance Corporation and Rush
Enterprises, Inc. dba Tulsa Trucks, Inc. in the maximum principal
amount of $900,000.00 (incorporated herein by reference to Exhibit
10.46 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.32. Promissory Note dated December 1, 1995, in the original principal
amount of $900,000.00, payable by Rush Enterprises, Inc. dba Tulsa
Trucks, Inc. to General Motors Acceptance Corporation (incorporated
herein by reference to Exhibit 10.47 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.33. Wholesale Security Agreement dated November 30, 1995 between General
Motors Acceptance Corporation and Rush Enterprises, Inc. dba Tulsa
Trucks, Inc. (incorporated herein by reference to Exhibit 10.48 of
the Company's Registration Statement No. 333-03346 on Form S-1 filed
April 10, 1996).
10.34. Agreement Amending the Wholesale Security Agreement and
Conditionally Authorizing the Sale of New Floor Plan Vehicles on a
Delayed Payment Privilege Basis dated November 30, 1995 between
General Motors Acceptance Corporation and Rush Enterprises, Inc. dba
Tulsa Trucks, Inc. (incorporated herein by reference to Exhibit
10.49 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.35. Guaranty dated November 30, 1995 by W. Marvin Rush on behalf of Rush
Enterprises, Inc. dba Tulsa Trucks, Inc. and accepted by General
Motors Acceptance Corporation (incorporated herein by reference to
Exhibit 10.50 of the Company's Registration Statement No. 333-03346
on Form S-1 filed April 10, 1996).
</TABLE>
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<TABLE>
<S> <C>
10.36. Guaranty Agreement dated December 1, 1995 by W. Marvin Rush in favor
of General Motors Acceptance Corporation in the amount of
$2,000,000.00 on behalf of Rush Enterprises, Inc. dba Oklahoma
Trucks, Inc. and Tulsa Trucks, Inc. (incorporated herein by
reference to Exhibit 10.51 of the Company's Registration Statement
No. 333-03346 on Form S-1 filed April 10, 1996).
10.37. Revolving Line of Credit Loan and Security Agreement dated December
18, 1995 between Rush Enterprises, Inc. dba Oklahoma Trucks, Inc.
and General Motors Acceptance Corporation in the maximum principal
amount of $800,000.00 (incorporated herein by reference to Exhibit
10.52 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.38. Promissory Note dated December 18, 1995, in the original principal
amount of $800,000.00, payable by Rush Enterprises, Inc. dba
Oklahoma Trucks, Inc. to General Motors Acceptance Corporation
(incorporated herein by reference to Exhibit 10.53 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.39. Revolving Line of Credit Loan and Security Agreement dated December
18, 1995 between Rush Enterprises, Inc. dba Tulsa Trucks, Inc. and
General Motors Acceptance Corporation in the maximum principal
amount of $700,000.00 (incorporated herein by reference to Exhibit
10.54 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.40. Promissory Note dated December 18, 1995, in the original principal
amount of $700,000.00, payable by Rush Enterprises, Inc. dba Tulsa
Trucks, Inc. to General Motors Acceptance Corporation (incorporated
herein by reference to Exhibit 10.55 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.41. Guaranty Agreement dated December 18, 1995 by W. Marvin Rush in
favor of General Motors Acceptance Corporation in the amount of
$1,500,000.00 on behalf of Rush Enterprises, Inc. dba Oklahoma
Trucks, Inc. and Tulsa Trucks, Inc. (incorporated herein by
reference to Exhibit 10.56 of the Company's Registration Statement
No. 333-03346 on Form S-1 filed April 10, 1996).
10.42. Revolving Promissory Note dated March 18, 1993, in the maximum
principal amount of $450,000.00, payable by Rush Enterprises, Inc.
to The Frost National Bank of San Antonio (incorporated herein by
reference to Exhibit 10.57 of the Company's Registration Statement
No. 333-03346 on Form S-1 filed April 10, 1996).
10.43. Dealership Purchase Contract dated November 10, 1995 between Kerr
Consolidated, Inc. and Rush Enterprises, Inc. (incorporated herein
by reference to Exhibit 10.58 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.44. Real Estate Purchase Agreement dated November 10, 1995 between Kerr
Consolidated, Inc. and Rush Enterprises, Inc. (incorporated herein
by reference to Exhibit 10.59 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.45. Promissory Note dated December 1, 1995, in the original principal
amount of $2,800,000.00 payable by Rush Enterprises, Inc. to Kerr
Consolidated, Inc. (incorporated herein by reference to Exhibit
10.60 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
</TABLE>
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<TABLE>
<S> <C>
10.46. Real Estate Mortgage dated December 1, 1995, in the original
principal sum of $2,800,000.00 payable by Rush Enterprises, Inc. to
Kerr Consolidated, Inc. (incorporated herein by reference to Exhibit
10.61 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.47. Real Estate Lease Agreement effective December 1, 1995 between Kerr
Consolidated, Inc. and Rush Enterprises, Inc. (incorporated herein
by reference to Exhibit 10.62 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.48. Secured Purchase Money Promissory Note dated February 1, 1994, in
the original principal amount of $984,000.00, payable by Rush
Enterprises, Inc. to Engs Motor Truck Company, Inc. (incorporated
herein by reference to Exhibit 10.64 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.49. Continuing Unlimited Guaranty dated February 24, 1994 by W. M. Rush
and Thomas McKellar in favor of Engs Motor Truck Company, Edward W.
Engs and Stewart R. Engs on behalf of South Coast Peterbilt
(incorporated herein by reference to Exhibit 10.65 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.50. Lease Modification Agreement dated February 1, 1994 between Richard
R. Shade and Barbara S. Lateer, Trustees of the Ruth R. Shade Trust,
et al, Engs Motor Truck Company and South Coast Peterbilt
(incorporated herein by reference to Exhibit 10.66 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.51. Lease Modification Agreement dated February 1, 1994 between Angelus
Block Company, Inc., Engs Motor Truck Company and South Coast
Peterbilt (incorporated herein by reference to Exhibit 10.67 of the
Company's Registration Statement No. 333-03346 on Form S-1 filed
April 10, 1996).
10.52. Lease Modification Agreement dated February 1, 1994 between Angelus
Block Company, Inc., Engs Motor Truck Company and South Coast
Peterbilt (incorporated herein by reference to Exhibit 10.68 of the
Company's Registration Statement No. 333-03346 on Form S-1 filed
April 10, 1996).
10.53. Lease dated February 1, 1994 between Edward W. Engs and Stuart R.
Engs, and South Coast Peterbilt (incorporated herein by reference to
Exhibit 10.69 of the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
10.54. Lease dated February 1, 1994 between Engs Motor Truck Company and
South Coast Peterbilt (incorporated herein by reference to Exhibit
10.70 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.55. Contract Termination and Release dated September 29, 1995 by and
among South Coast Peterbilt, Rush Enterprises, Inc., Tom McKellar,
Inc. and Tom McKellar (incorporated herein by reference to Exhibit
10.71 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.56. Termination Agreement dated September 29, 1995 by and among Rush
Enterprises, Inc., Tom McKellar, Inc. and South Coast Peterbilt
(incorporated herein by reference to Exhibit 10.72 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.57. Lease Agreement effective November 1, 1992, between Pete Gallegos
and Rush Enterprises, Inc. dba Laredo Peterbilt, Inc., as amended
August 31, 1994 (incorporated
</TABLE>
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<TABLE>
<S> <C>
herein by reference to Exhibit 10.73 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.58. Commercial Lease dated July 31, 1992, between R. L. Lehman and Rush
Enterprises, Inc. dba Lufkin Peterbilt, Inc., as amended through
June 1, 1995 (incorporated herein by reference to Exhibit 10.74 of
the Company's Registration Statement No. 333-03346 on Form S-1 filed
April 10, 1996).
10.59. Lease Agreement dated September 17, 1993 between McBray Realty, Inc.
and Rush Enterprises, Inc. dba Ark-La-Tex Peterbilt (incorporated
herein by reference to Exhibit 10.75 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.60. Right of First Refusal dated April 1, 1996 between Peterbilt Motors
Company and W. Marvin Rush (incorporated herein by reference to
Exhibit 10.76 of the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
10.61. Right of First Refusal dated April 1, 1996 between Peterbilt Motors
Company and Barbara Rush (incorporated herein by reference to
Exhibit 10.77 of the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
10.62. Right of First Refusal dated April 1, 1996 between Peterbilt Motors
Company and W. M. "Rusty" Rush (incorporated herein by reference to
Exhibit 10.78 of the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
10.63. Right of First Refusal dated April 1, 1996 between Peterbilt Motors
Company and Robin Rush (incorporated herein by reference to Exhibit
10.79 of the Company's Registration Statement No. 333-03346 on
Form S-1 filed April 10, 1996).
10.64. Form of Indemnity Agreement between Rush Enterprises, Inc. and the
members of its Board of Directors (incorporated herein by reference
to Exhibit 10.80 of the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
10.65. Form of Employment Agreement between W. Marvin Rush, W.M. "Rusty"
Rush and Robin M. Rush (incorporated herein by reference to Exhibit
10.81 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.66. Form of Employment Agreement between Rush Enterprises, Inc., D.
Jeffery Michell, David C. Orf, B.J. Tanner, Brent Hughes, J.M.
"Spike" Lowe, Donald Teague, Ralph West and John Hiltabiddle
(incorporated herein by reference to Exhibit 10.82 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.67. Tax Indemnification Agreement between Rush Enterprises, Inc.,
Associated Acceptance, Inc. and W. Marvin Rush (incorporated herein
by reference to Exhibit 10.83 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.68. Rush Enterprises, Inc. Long-Term Incentive Plan (incorporated herein
by reference to Exhibit 10.84 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.69. Form of Rush Enterprises, Inc. Long-Term Incentive Plan Stock Option
Agreement (incorporated herein by reference to Exhibit 10.85 of the
Company's Registration Statement No. 333-03346 on Form S-1 filed
April 10, 1996).
10.70. Revolving Line of Credit Loan and Security Agreement dated February
24, 1994, between General Motors Acceptance Corporation and Rush
Enterprises, Inc. dba South Coast Peterbilt in the maximum principal
amount of $3,000,000.00 (incorporated herein
</TABLE>
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<S> <C>
by reference to Exhibit 10.86 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.71. Demand Promissory Note dated February 24, 1994, in the original
principal amount of $3,000,000.00, payable by Rush Enterprises, Inc.
dba South Coast Peterbilt to General Motors Acceptance Corporation
(incorporated herein by reference to Exhibit 10.87 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.72. General Security Agreement dated February 2, 1994 between General
Motors Acceptance Corporation and Rush Enterprises, Inc. dba South
Coast Peterbilt (incorporated herein by reference to Exhibit 10.88
of the Company's Registration Statement No. 333-03346 on Form S-1
filed April 10, 1996).
10.73. Guaranty dated February 2, 1994 between General Motors Acceptance
Corporation and Rush Enterprises, Inc. dba South Coast Peterbilt
(incorporated herein by reference to Exhibit 10.89 of the Company's
Registration Statement No. 333-03346 on Form S-1 filed April 10,
1996).
10.74. Real Estate Lien Note dated July 1, 1993, in the principal amount of
$1,238,000.00, payable by Rush Enterprises, Inc. to Associates
Commercial Corporation (incorporated herein by reference to Exhibit
10.90 of the Company's Registration Statement No. 333-03346 on Form
S-1 filed April 10, 1996).
10.75. Promissory Note dated December 7, 1995, in the original principal
amount of $1,900,000.00, payable by Rush Enterprises, Inc. to
General Electric Capital Corporation (incorporated herein by
reference to Exhibit 10.91 of the Company's Registration Statement
No. 333-03346 on Form S-1 filed April 10, 1996).
10.76. Aircraft Chattel Mortgage dated December 4, 1995, as amended,
between Rush Enterprises, Inc. as Mortgagor and General Electric
Capital Corporation as Mortgagee (incorporated herein by reference
to Exhibit 10.92 of the Company's Registration Statement No.
333-03346 on Form S-1 filed April 10, 1996).
10.77. Individual Guaranty dated December 4, 1995, between General Electric
Capital Corporation and Rush Enterprises, Inc. (incorporated herein
by reference to Exhibit 10.93 of the Company's Registration
Statement No. 333-03346 on Form S-1 filed April 10, 1996).
10.78. Dealership Purchase Contract dated December 9, 1996 by and among
Rush Truck Centers of Colorado, Inc., Rush Enterprises, Inc., Denver
Peterbilt, Inc., and Greg Lessing. (incorporated herein by reference
to Exhibit 10.78 of the Company's Annual Report on Form 10 K filed
March 31, 1998).
*11.1 Computation of pro forma earnings per share.
</TABLE>
85
<PAGE> 86
<TABLE>
<S> <C>
21.1 Subsidiaries of the Company.
</TABLE>
<TABLE>
<CAPTION>
Names Under
State of Which Subsidiary
Name Incorporation Does Business
---- ------------- -------------
<S> <C> <C>
Rush Truck Centers of Texas, Inc. Delaware Creative Concepts Advertising Agency
Hou-Tex Industrial and Truck Supply
Houston Peterbilt, Inc.
Laredo Peterbilt, Inc.
Lufkin Peterbilt, Inc.
Rush Truck Center
San Antonio Peterbilt, Inc.
San Antonio Peterbilt-GMC Truck, Inc.
Translease
World Wide Tires
Rush Truck Center, Pharr
Rush Truck Centers of Oklahoma, Inc. Delaware Oklahoma Trucks, Inc.
Translease
Tulsa Trucks, Inc.
Rush Truck Centers of California, Inc., Which Delaware South Coast Peterbilt
Will do Business in California as Complete Translease
Rush Truck Centers World Wide Tires
Rush Truck Centers of Louisiana, Inc. Delaware Ark-La-Tex Peterbilt, Inc.
Translease
Los Cuernos, Inc. Delaware Los Cuernos Ranch
Rush Administrative Services, Inc. Delaware None
AiRush, Inc. Delaware None
Rush Truck Leasing, Inc. Delaware None
Rush Truck Centers of Colorado, Inc. Delaware Rush Truck Centers, Inc.
Rush Equipment Centers of Texas, Inc. Delaware Rush Equipment Center, Houston
Rush Equipment Center, Beaumont
*23.1 Consent of Arthur Andersen LLP
*27.1 Financial Data Schedule.
</TABLE>
* filed herewith
86
<PAGE> 87
(b) Reports on Form 8-K:
Form 8-K dated October 21, 1997, describing acquisition of certain
assets from C. Jim Stewart and Stevenson, Inc. and Stewart and Stevenson Realty
Corp.
Form 8-K/A dated October 19, 1997, continuing the financial statements
and pro forma financial information pertaining to the previously disclosed
acquisition of assets from C. Jim Stewart and Stevenson, Inc. and Stewart and
Stevenson Realty Corp.
87
<PAGE> 88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RUSH ENTERPRISES, INC.
By: /s/ W. MARVIN RUSH Date: March 26, 1998
----------------------------
W. Marvin Rush
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ W. MARVIN RUSH Chairman and Chief Executive Officer, March 26, 1998
- ------------------------ Director (Principal Executive Officer)
W. Marvin Rush
/s/ W. M. "RUSTY" RUSH President, Director March 26, 1998
- ------------------------
W. M. "Rusty" Rush
/s/ ROBIN M. RUSH Executive Vice President, Secretary, March 26, 1998
- ------------------------ Treasurer and Director
Robin M. Rush
/s/ RONALD J. KRAUSE Director March 26, 1998
- ------------------------
Ronald J. Krause
/s/JOSEPH M. DUNN Director March 26, 1998
- ------------------------ Treasurer and Director
Robin M. Rush
Joseph M. Dunn
/s/MARTIN A NAEGELIN, JR. Vice President and March 26, 1998
- ------------------------ Chief Financial Officer
Martin A. Naegelin, Jr. (Principal Financial and
Accounting Officer)
</TABLE>
88
<PAGE> 89
EXHIBIT INDEX
Exhibit 11.1 Computation of Net Income and Pro Forma Earnings per share
Exhibit 23.1 Consent from Independent Public Accountants
Exhibit 27 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 YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ---------------------
1997 1996 1997 1996
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE CALCULATION
Net Income $ 1,940 $1,607 $5,380 $6,202
========= ====== ====== ======
Weighted average number of common shares outstanding 6,644 6,644 6,644 5,590
Earnings per share - Basic $ 0.29 $ 0.24 $ 0.81 $ 1.11
========= ====== ====== ======
DILUTED EARNINGS PER SHARE CALCULATION
Net Income $ 1,940 $1,607 $5,380 $6,202
========= ====== ====== ======
Weighted average number of common shares outstanding 6,644 6,644 6,644 5,590
Weighted average number of common share equivalents
applicable to stock options 1 -- 1 --
========= ====== ====== ======
Common shares and common share equivalents 6,645 6,644 6,645 5,590
Earnings per share - Diluted $ 0.29 $ 0.24 $ 0.81 $ 1.11
========= ====== ====== ======
PRO FORMA BASIC AND DILUTED EARNINGS PER SHARE
Pro forma net income after provision for income taxes $ 5,268
Weighted average basic and diluted shares of common stock outstanding 5,338
Pro forma shares issued at offering price to pay undistributed S corporation earnings 252
-------
Pro forma weighted average basic and diluted shares outstanding 5,590
-------
Pro forma basic and diluted net income per share $ 0.94
=======
</TABLE>
89
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed Registration Statement (SEC File No. 333-07043).
ARTHUR ANDERSEN LLP
San Antonio, Texas
March 26, 1998
90
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RUSH ENTERPRISES, INC FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 19,816
<SECURITIES> 0
<RECEIVABLES> 20,894
<ALLOWANCES> 0
<INVENTORY> 66,757
<CURRENT-ASSETS> 107,848
<PP&E> 41,692
<DEPRECIATION> (7,534)
<TOTAL-ASSETS> 155,478
<CURRENT-LIABILITIES> 89,484
<BONDS> 22,742
0
0
<COMMON> 66
<OTHER-SE> 42,006
<TOTAL-LIABILITY-AND-EQUITY> 155,478
<SALES> 0
<TOTAL-REVENUES> 399,369
<CGS> 334,583
<TOTAL-COSTS> 388,178
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,513
<INCOME-PRETAX> 8,678
<INCOME-TAX> 3,298
<INCOME-CONTINUING> 5,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,380
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
