<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-20797
--------------
RUSH ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1733016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8810 I.H. 10 East
San Antonio, Texas 78219
(Address of principal executive offices)
(Zip Code)
(210) 661-4511
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicated below is the number of shares outstanding of the registrant's
only class of common stock, as of May 7, 1999.
Number of
Shares
Title of Class Outstanding
-------------- -----------
Common Stock, $.01 Par Value 6,646,488
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999 (unaudited) and December 31, 1998. . . 3
Consolidated Statements of Income - For the Three Months
Ended March 31, 1999 and 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 1999 and 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2a. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . 15
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
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RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,541 $ 22,516
Accounts receivable, net 24,116 19,478
Inventories 123,900 107,140
Prepaid expenses and other 566 607
------------ ------------
Total current assets 164,123 149,741
PROPERTY AND EQUIPMENT, net 63,733 54,448
OTHER ASSETS, net 17,942 16,511
------------ ------------
Total assets $ 245,798 $ 220,700
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable $ 105,813 $ 89,212
Current maturities of long-term debt 5,921 7,095
Advances outstanding under lines of credit 10 10
Trade accounts payable 7,944 6,926
Accrued expenses 20,929 20,086
Note payable to shareholder 8,900 10,700
------------ ------------
Total current liabilities 149,517 134,029
------------ ------------
LONG-TERM DEBT, net of current maturities 37,968 32,164
DEFERRED INCOME TAXES, net 2,125 1,638
COMMITMENTS AND CONTINGENCIES (Note 2)
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares
outstanding in 1998 and 1999 -- --
Common stock, par value $.01 per share; 25,000,000 shares authorized; 6,646,730 and
6,646,488 shares outstanding in 1998 and 1999, respectively 66 66
Additional paid-in capital 33,342 33,342
Retained earnings 22,780 19,461
------------ ------------
Total shareholders' equity 56,188 52,869
------------ ------------
Total liabilities and shareholders' equity $ 245,798 $ 220,700
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
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RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
---------- ----------
<S> <C> <C>
REVENUES:
New and used truck sales $ 121,684 $ 84,987
Parts and service 30,141 23,329
Construction equipment sales 11,792 7,951
Lease and rental 5,058 4,830
Finance and insurance 3,628 2,358
Retail sales 4,612 1,390
Other 928 1,230
---------- ----------
Total revenues 177,843 126,075
COST OF PRODUCTS SOLD 146,608 104,363
---------- ----------
GROSS PROFIT 31,235 21,712
SELLING, GENERAL AND ADMINISTRATIVE 22,889 17,231
DEPRECIATION AND AMORTIZATION 1,330 955
---------- ----------
OPERATING INCOME 7,016 3,526
---------- ----------
INTEREST EXPENSE, NET 1,484 1,298
---------- ----------
INCOME BEFORE INCOME TAXES 5,532 2,228
---------- ----------
PROVISION FOR INCOME TAXES 2,213 891
---------- ----------
NET INCOME $ 3,319 $ 1,337
========== ==========
BASIC AND DILUTED INCOME PER SHARE $ .50 $ .20
========== ==========
Weighted average shares outstanding:
Basic 6,646 6,644
========== ==========
Diluted 6,706 6,645
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,319 $ 1,337
Adjustments to reconcile net income to net cash provided by operating
activities - net of acquisitions
Depreciation and amortization 1,678 955
Gain on sale of property and equipment (33) (47)
Provision for deferred income tax expense 487 160
Change in accounts receivable, net (4,638) (4,251)
Change in inventories (16,760) (17,019)
Change in prepaid expenses and other, net 41 (25)
Change in trade accounts payable 1,018 (1,023)
Change in accrued expenses 843 244
-------- --------
Net cash used in operating activities (14,045) (19,669)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (11,077) (4,585)
Proceeds from the sale of property and equipment 323 139
Business acquisitions -- (5,817)
Change in other assets (1,607) 607
-------- --------
Net cash used in investing activities (12,361) (9,656)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 7,076 7,274
Principal payments on debt (4,246) (503)
Draws on floor plan notes payable, net 16,601 20,632
-------- --------
Net cash provided by financing activities 19,431 27,403
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,975) (1,922)
CASH AND CASH EQUIVALENTS, beginning of period 22,516 19,816
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 15,541 $ 17,894
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $ 598 $ 1,312
======== ========
Income taxes $ 35 $ 42
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The interim consolidated financial statements included herein have been
prepared by Rush Enterprises, Inc. and its subsidiaries (collectively referred
to as the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). All adjustments have been made
to the accompanying interim consolidated financial statements which are, in the
opinion of the Company's management, necessary for a fair presentation of the
Company's operating results. All adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. It is
recommended that these interim consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on form 10-K for the year ended December
31, 1998.
2 - COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to certain finance companies for
certain promissory notes and finance contracts, related to the sale of trucks
and construction equipment, sold to such finance companies. The Company's
recourse liability related to sold finance contracts is limited to 15 to 25
percent of the outstanding balance of each note sold to a finance company, with
the aggregate recourse liability for 1999 limited to $600,000.
The Company provides an allowance for repossession losses and early
repayment penalties.
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 to 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 a consulting agreement with certain individuals for an
aggregate monthly payment of $2,225. The agreement expires November 2000.
6
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3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---------- ----------
<S> <C> <C>
Numerator:
Net income- numerator for basic and diluted earnings per share $3,319,000 $1,337,000
Denominator:
Denominator for basic earnings per share-weighted average shares 6,646,488 6,643,730
Effect of dilutive securities:
Employee and Director stock options 59,175 1,659
---------- ----------
Denominator for diluted earnings per share-adjusted weighted average
shares 6,705,663 6,645,389
========== ==========
Basic earnings per share $ .50 $ .20
========== ==========
Diluted earnings per share $ .50 $ .20
========== ==========
</TABLE>
4 - SEGMENT INFORMATION
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.
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 provides 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 Heavy Duty Truck segment has locations in Texas, California, Colorado,
Oklahoma and Louisiana. The Construction Equipment segment, formed during 1997,
operates full-service John Deere dealerships that serves the Houston, Texas
Metropolitan and surrounding areas and 54 counties in western Michigan.
Dealership operations include the retail sale of new and used construction
equipment, after-market parts and service facilities, equipment rentals, and the
financing of new and used equipment.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. The Company
evaluates performance based on income before income taxes not including
extraordinary items.
The Company accounts for intersegment sales and transfers at current
market prices as if the sales or transfers were to third parties. There were no
intersegment sales during the three months ended March 31, 1999.
7
<PAGE> 8
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 revenue, operating income and
segment assets, for the three months ended March 31, 1998 and 1999: (in
thousands)
<TABLE>
<CAPTION>
HEAVY-DUTY CONSTRUCTION
TRUCK EQUIPMENT
SEGMENT SEGMENT ALL OTHER TOTALS
------- ------- --------- ------
<S> <C> <C> <C> <C>
Three months ended March 31, 1998
Revenues from external customers $ 110,864 $ 11,856 $ 3,355 $ 126,075
Segment income before taxes 2,087 2 139 2,228
Segment assets 126,431 41,202 18,477 186,110
Three months ended March 31, 1999
Revenues from external customers $ 153,245 $ 17,405 $ 7,193 $ 177,843
Segment income before taxes 4,866 220 446 5,532
Segment assets 155,218 69,905 20,675 245,798
</TABLE>
Revenues from segments below the reportable quantitative thresholds are
attributable to four operating segments of the Company. Those segments include a
tire company, a farm and ranch retail center, an insurance company, and a
hunting lease operation. None of those segments has ever met any of the
quantitative thresholds for determining reportable segments.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in this Form 10-Q are "forward-looking
statements" within the meaning of the Section 27Aof the Securities Act of and
Section 21E of the Exchange Act. Specifically, all statements other than
statements of historical fact included in this Form 10-Q 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. The Company
does not intend to update these forward-looking statements.
The following comments should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q.
GENERAL
Rush Enterprises, Inc. was incorporated in Texas in 1965 and currently
consists of 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 Company's truck centers
are strategically located in high truck traffic areas on or near major highways
in Texas, California, Oklahoma, Colorado and Louisiana. The Company is the
largest Peterbilt truck dealer in the United States, representing approximately
19.5% of all new Peterbilt truck sales in 1998, 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 Construction Equipment segment, formed during 1997, now operates two
full-service John Deere dealerships with six locations (the "Rush Equipment
Centers") in Texas and western Michigan. Dealership operations include the
retail sale of new and used construction equipment, after-market parts and
service facilities, equipment rentals, and the financing of new and used
construction equipment. The Company believes the construction equipment industry
is highly-fragmented and offers opportunities for consolidation.
9
<PAGE> 10
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.
There can be no assurance that, as the Company continues to develop a network of
construction equipment dealerships, that it will realize economies of scale,
favorable purchasing power or cost savings.
In March 1998, the Company acquired all of the outstanding capital
stock of D & D Farm and Ranch Supermarket, Inc. ("D & D"), for consideration of
approximately $10.5 million. D & D operates a retail farm and ranch superstore
in the Greater San Antonio, Texas area.
In September 1998, the Company purchased substantially all of the assets of
Klooster Equipment, Inc. which consisted of three full-service dealerships and
one retail only location covering 54 counties in Western Michigan. The
acquisition provides the Company with an immediate presence in the construction
equipment industry in the state of Michigan. The purchase price was
approximately $13.1 million funded by (i) $2.5 million of cash, (ii) $9.8
million of borrowings under the Company's floor plan financing arrangements with
Associates Commercial Corp. and John Deere Inc., and (iii) $836,000 of
borrowings from John Deere Credit Corp.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's historical
results of operations for the three months ended March 31, 1999 and 1998.
The following table sets forth for the periods indicated certain
financial data as a percentage of total revenues:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
New and used truck sales ...................................... 68.4% 67.4%
Parts and service ............................................. 17.0 18.5
Construction equipment sales .................................. 6.6 6.3
Lease and rental .............................................. 2.9 3.8
Finance and insurance ......................................... 2.0 1.9
Retail sales .................................................. 2.6 1.1
Other ......................................................... 0.5 1.0
-------- --------
Total revenues ....................................... 100.0 100.0
Cost of products sold ......................................... 82.4 82.8
-------- --------
Gross profit .................................................. 17.6 17.2
Selling, general and administrative expenses .................. 12.9 13.7
Depreciation and amortization ................................. .7 .8
-------- --------
Operating income .............................................. 4.0 2.7
Interest expense .............................................. 0.8 1.0
-------- --------
Income before income taxes .................................... 3.2 1.7
Provision for income taxes .................................... 1.2 .7
-------- --------
Net income .................................................... 2.0% 1.0%
-------- --------
</TABLE>
10
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THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues
Revenues increased by approximately $51.8 million, or 41.1%, from
$126.1 million to $177.9 million from the first quarter of 1998 to the first
quarter of 1999. Approximately, $9.6 million in sales is attributable to the
addition of the D&D Farm & Ranch Supermarket, and the Michigan John Deere
construction equipment dealership, while the remaining increase of $42.2 million
or 33.5%, is attributable to same store growth. Sales of new and used trucks
increased by approximately $36.7 million, or 43.2%, from $85.0 million to $121.7
million from the first quarter of 1998 to the first quarter of 1999. Unit sales
of new and used trucks increased by 43.4% and 7.3%, respectively, from the first
quarter of 1998 to the first quarter of 1999, while new truck average revenue
per unit increased by 3.4% and used truck average revenue per unit increased by
16.0%. Average new truck prices and used truck prices increased due to a change
in product mix.
Parts and service sales increased by approximately $6.8 million, or
29.2%, from $23.3 million to $30.1 million. The increase was due to same store
growth of 20.8% and parts and service sales associated with addition of the
Michigan John Deere construction equipment dealership.
Lease and rental revenues increased by approximately $228,000, or 4.7%
from $4.8 million to $5.0 million. Truck lease and rental revenue increased
approximately $293,000 or 8.2%, while the crane lease and rentals and the
addition of the Michigan construction equipment store added $142,000 and
$201,000 in lease and rental revenues respectively. These increases were offset
by a decrease in the Houston construction equipment store lease and rental
revenue of approximately $432,000. The decrease in Houston was a result of a
decrease in the lease and rental fleet from the first quarter of 1998 to the
first quarter of 1999.
Finance and insurance revenues increased by approximately $1.3 million,
or 54.2%, from $2.3 million to $3.6 million from the first quarter of 1998 to
the first quarter of 1999. The majority of the increase resulted from the
increase in truck deliveries. Finance and insurance revenues have limited direct
costs and, therefore, contribute a disproportionate share of operating profits.
Gross Profit
Gross profit increased by approximately $9.5 million, or 30.5%, from
$21.7 million to $31.2 million from the first quarter of 1998 to the first
quarter of 1999. Gross profit as a percentage of sales increased from 17.2% in
the first quarter of 1998 to 17.6% in the first quarter of 1999. The increase is
due to increased gross margins in all of the truck stores profit centers, as
well as increased margins in the construction equipment dealerships.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by approximately
$5.7 million, from $17.2 million to $22.9 million, or 33.1%, from the first
quarter of 1998 to the first quarter of 1999. The increase resulted from
approximately $1.8 million of selling, general and administrative expense
related to the acquisition and integration of the Michigan John Deere
construction equipment dealership, and D & D Farm and Ranch Supermarket, Inc.,
and increased sales commissions resulting from increased gross margins. Selling,
general and administrative expenses as a percentage of sales decreased from
13.7% to 12.9% from the first quarter of 1998 to the first quarter of 1999.
Interest Expense
Interest expense increased by approximately $186,000 or 14.3%, from
$1.3 million to $1.5 million, from the first quarter of 1998 to the first
quarter of 1999, primarily as the result of increased levels of indebtedness due
to higher floor plan liability levels.
11
<PAGE> 12
Income before Income Taxes
Income before income taxes increased by $3.3 million, or 150%, from
$2.2 million to $5.5 million from the first quarter of 1998 to the first quarter
of 1999, as a result of the factors described above.
Income Taxes
The Company has provided for taxes at a 40% effective rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital,
including inventory requirements, expansion of existing facilities and the
acquisition of new facilities. These short-term cash needs have historically
been financed with retained earnings and borrowings under credit facilities
available to the Company.
At March 31, 1999, the Company had working capital of approximately
$14.6 million, including $15.5 million in cash and cash equivalents, $24.1
million in accounts receivable, $123.9 million in inventories, and $0.6 million
in prepaid expenses, less $28.9 million of accounts payable and accrued
expenses, $5.9 million of current maturities on long-term debt, $8.9 million in
a note payable to a shareholder, and $105.8 million outstanding under floor plan
financing. The aggregate maximum borrowing limits under working capital lines of
credit with various commercial banks are approximately $8.0 million. The
Company's floor plan agreements with its primary lender limit the aggregate
amount of borrowings based on the number of new and used trucks and the book
value of construction equipment inventory.
For the first three months of 1999, operating activities resulted in
net cash used in operations of approximately $14.0 million. Net income of $3.3
million, increases in accounts payable of $1.0 million, and accrued liabilities
of $0.8 million, coupled with provisions for depreciation, amortization and
deferred taxes totaling $2.1 million was more than offset by increases in
accounts receivable, and inventories totaling $21.4 million.
For the first three months of 1998, operating activities resulted in
net cash used in operations of approximately $19.7 million. Net income of $1.3
million, an increase in accrued liabilities coupled with provisions for
depreciation, amortization and deferred taxes totaling $1.4 million was more
than offset by increases in accounts receivable, inventories and other assets
and a decrease in accounts payable totaling $22.4 million.
During the first three months of 1999, the Company used $12.4 million
in investing activities, including purchases of property, plant and equipment of
$11.1 million and an increase in other assets of $1.6 million, offset by
proceeds from the sale of property, plant and equipment and a decrease in other
assets totaling $0.3 million.
During the first three months of 1998, the Company used $9.7 million in
investing activities, including purchases of property, plant and equipment of
$4.6 million, a cash outlay of $5.8 million for the acquisition of D & D Farm
and Ranch Supermarket, Inc., offset by proceeds from the sale of property, plant
and equipment and a decrease in other assets totaling $0.7 million.
Net cash generated from financing activities in the first three months
of 1999 amounted to $19.4 million. Proceeds from additional floor plan financing
and increased notes payable of $23.7 million more than offset principal payments
on notes payable of $4.3 million.
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<PAGE> 13
Net cash generated from financing activities in the first three months
of 1998 amounted to $27.4 million. Proceeds from additional floor plan financing
and increased notes payable more than offset principal payments on notes
payable.
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 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
to GMAC prior to the sale of new vehicles for a period of 12 months and for used
vehicles for a period of three months. At March 31, 1999, the Company had
approximately $59.3 million outstanding under its floor plan financing
arrangement with GMAC. GMAC permits the Company to earn, for up to 50% of the
amount borrowed under its floor plan financing arrangement with GMAC, interest
at the prime rate less one-quarter percent on overnight funds deposited by the
Company with GMAC.
The Company finances all, or substantially all, of the purchase price
of its new equipment inventory under its floor plan facilities with John Deere
and Associates Commercial Corp.. The agreement with John Deere provides for an
immediate 3% discount if the equipment is paid for within 30 days from the date
of purchase, or interest free financing for five months, after which time the
amount financed is required to be paid in full. 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 date 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, and interest payments for all 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 March
31, 1999, the Company's floor plan arrangement with Associates Commercial Corp.
permits the financing of up to $25 million in construction equipment. At March
31, 1999, the Company had $29.4 million and $17.1 million, outstanding under its
floor plan financing arrangements with John Deere and Associates Commercial
Corp., respectively.
Backlogs
The Company enters firm orders into its backlog at the time the order
is received. Currently, customer orders are being filled in approximately six to
nine months and customers have historically placed orders expecting delivery
within three to six months. However, certain customers, including fleets and
governments, typically place orders up to one year in advance of their desired
delivery date. The Company in the past has typically allowed customers to cancel
orders at any time prior to delivery, and the Company's level of cancellations
is affected by general economic conditions, economic recessions and customer
business cycles. As a percentage of orders, cancellations historically have
ranged from 5% to 12% of annual order volume. The Company's backlogs as of March
31, 1999, and 1998, were approximately $185 million and $150 million,
respectively. Backlogs increased principally due to the above noted longer lead
times for truck deliveries and a strong demand for trucks.
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, which includes small and large fleets, governments, corporations and owner
operators. However, truck, parts and service operations historically have
experienced higher volumes of sales in the second and third quarters. The
Company has historically received benefits from volume purchases and meeting
vendor sales targets in the form of cash rebates, which are typically recognized
when received.
13
<PAGE> 14
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. Seasonal effects 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
and construction equipment industries, are 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 and construction equipment have historically been
subject to substantial cyclical variation based on such general economic
conditions. Although the Company believes that its geographic expansion and
diversification into truck and construction equipment related services,
including financial services, leasing, rentals and service and parts, will
reduce the overall impact to the Company resulting from general economic
conditions affecting heavy-duty truck sales, the Company's operations may be
materially and adversely affected by any continuation or renewal of general
downward economic pressures or adverse cyclical trends.
Effects of Inflation
The Company believes that the relatively moderate inflation over the
last few years has not had a significant impact on the Company's revenue or
profitability. The company does not expect inflation to have any near-term
material effect on the sales of its products, although there can be no assurance
that such an effect will not occur in the future.
Year 2000
The Year 2000 disclosure below constitutes a "Year 2000 Readiness Disclosure" as
defined in The Year 2000 Information and Readiness Disclosure Act (the "Act"),
which was signed into law on October 19, 1998. The Act provides added protection
from liability for certain public and private statements concerning a company's
Year 2000 readiness.
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. The efficient operation of the
Company's business is dependent on the proper functioning of its computer
software programs, network and operating systems (collectively, "Programs and
Systems"). These Programs and Systems are used in several key areas of the
Company's business, including inventory management, information management
services and financial reporting, as well as in various administrative
functions.
The Company engaged an outside consultant to assist it in performing an
inventory of its Programs and Systems to identify potential year 2000 compliance
problems, as well as manual processes, external interfaces with suppliers,
customers and vendors, and services supplied by vendors to coordinate year 2000
compliance and conversion. This inventory was completed during the first quarter
of 1999 and evaluated the Programs and Systems, the Company's other devices
which have imbedded computer processors or microchips and telecommunication,
HVAC and security systems. Based on the Company's Programs and Systems inventory
and information supplied by the Company's vendors and suppliers, the Company
expects to attain year 2000 compliance in a timely fashion and in advance of the
year 2000 date change.
14
<PAGE> 15
The primary operating systems of the Company are Karmak and PFW. The Company
believes, based upon representations made by the vendor of PFW, that PFW is
currently year 2000 compliant. The vendor of Karmak has informed the Company
that Karmak is currently year 2000 compliant. The Company is currently in the
process of procuring additional hardware necessary to operate the new compliant
version of Karmak and expects to be using the new version by June 1, 1999.
The Company believes that 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, including costs
associated with modifying the Programs and Systems as well as the cost of
purchasing or leasing, if required, replacement hardware and software, will not
have a material effect on its business, financial position or results of
operations and are expenses and capital expenditures the Company anticipated
incurring in the ordinary course of business regardless of the year 2000
problem. Purchased hardware and software has been and will continue to be
capitalized in accordance with normal accounting policy. Personnel and other
costs related to this process are being expensed as incurred.
The costs of year 2000 compliance and the expected completion dates are the best
estimates of Company management and are believed to be reasonably accurate. In
the event the Company's plan to address the year 2000 problem is not
successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred, which could have
a material adverse effect on the Company's financial condition and results of
operations. Problems encountered by the Company's vendors, customers and other
third parties also may have a material adverse effect on the Company's financial
condition and results of operations.
In the event the Company determines following the year 2000 date change that its
Programs and Systems are not year 2000 compliant, the Company will likely
experience considerable delays in processing customer orders and invoices,
compiling information required for financial reporting and performing various
administrative functions. In the event of such occurrence to either the
Company's network or its primary operating systems, Karmak and PFW, the
Company's contingency plans call for it to obtain, either from its current or
other vendors, as soon as is feasible, hardware and/or software that is 2000
compliant. Until such hardware and/or software can be obtained, the Company will
plan to use non-computer systems and manual processes for its business,
including information management services and financial reporting, as well as
its various administrative functions. Non-critical hardware or software will be
replaced, consistent with the Company's current policy, on an as-needed basis.
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations, or cash flows of the Company due to adverse
changes in financial market prices, including interest rate risk, and other
relevant market rate or price risks.
The Company is exposed to some market risk through interest rates,
related to its floor plan borrowing arrangements and discount rates related to
finance sales. Floor plan borrowings are based on the Prime Rate of interest and
are used to meet working capital needs. As of December 31, 1998, the Company had
floor plan borrowings of approximately $105,813,000. Assuming an increase in the
Prime Rate of interest of 100 basis points, future cash flows would be effected
by $1,058,000. The interest rate variability on all other debt would not have a
material adverse effect on the Company's financial statements. The Company's
provides all customer financing opportunities to various finance providers. The
Company receives all finance charges, in excess of a negotiated discount rate,
from the finance providers within 30 days. The negotiated discount rate is
variable, thus subject to interest rate fluctuations. This interest rate risk is
mitigated by the Company's ability to pass discount rate increases to customers
through higher financing rates.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number
------
27.1* Financial data schedule
* Filed herewith
b) Reports on Form 8-K
None
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
RUSH ENTERPRISES, INC.
Date: May 13, 1999 By: /S/ W. MARVIN RUSH
--------------------------------------
Name: W. Marvin Rush
Title: Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1999 By: /S/ Martin A. Naegelin, Jr.
--------------------------------------
Name: Martin A. Naegelin, Jr.
Title: Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
17
<PAGE> 18
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
27.1* Financial data schedule
-----
* Filed herewith
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RUSH ENTERPRISES, INC. FOR THE THREE MONTHS ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,541
<SECURITIES> 0
<RECEIVABLES> 24,116
<ALLOWANCES> 0
<INVENTORY> 123,900
<CURRENT-ASSETS> 164,123
<PP&E> 75,765
<DEPRECIATION> (12,032)
<TOTAL-ASSETS> 245,798
<CURRENT-LIABILITIES> 149,517
<BONDS> 37,968
0
0
<COMMON> 66
<OTHER-SE> 46,122
<TOTAL-LIABILITY-AND-EQUITY> 245,798
<SALES> 177,843
<TOTAL-REVENUES> 177,843
<CGS> 146,608
<TOTAL-COSTS> 170,827
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,484
<INCOME-PRETAX> 5,532
<INCOME-TAX> 2,213
<INCOME-CONTINUING> 3,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,319
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
