<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 August 7, 1999.
Number of
Shares
Title of Class Outstanding
-------------- -----------
Common Stock, $.01 Par Value 6,646,488
<PAGE> 2
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999 (unaudited) and December 31, 1998 ..... 3
Consolidated Statements of Income - For the Three and Six Months
Ended June 30, 1999 and 1998 (unaudited) .......................................... 4
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 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 3. Quantitative and Qualitative Disclosures about Market Risk ............... 18
PART II. OTHER INFORMATION ................................................................ 19
SIGNATURES ................................................................................. 21
</TABLE>
2
<PAGE> 3
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,008 $ 22,516
Accounts receivable, net 18,326 19,478
Inventories 138,793 107,140
Prepaid expenses and other 523 607
-------- --------
Total current assets 170,650 149,741
PROPERTY AND EQUIPMENT, net 68,855 54,448
OTHER ASSETS, net 17,835 16,511
-------- --------
Total assets $257,340 $220,700
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable $115,544 $ 89,212
Current maturities of long-term debt 5,904 7,095
Advances outstanding under lines of credit 10 10
Trade accounts payable 6,990 6,926
Accrued expenses 15,414 20,086
Note payable to shareholder 8,850 10,700
-------- --------
Total current liabilities 152,712 134,029
LONG-TERM DEBT, net of current maturities 41,924 32,164
DEFERRED INCOME TAXES, net 2,630 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 26,666 19,461
-------- --------
Total shareholders' equity 60,074 52,869
-------- --------
Total liabilities and shareholders' equity $257,340 $220,700
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
New and used truck sales $129,607 $117,392 $251,291 $202,379
Parts and service 31,477 27,047 61,618 50,376
Construction equipment sales 12,807 9,962 24,599 17,913
Lease and rental 6,279 4,145 11,337 8,975
Finance and insurance 3,875 3,039 7,503 5,397
Retail sales 4,499 4,239 9,111 5,629
Other 868 159 1,796 1,389
-------- -------- -------- --------
TOTAL REVENUES 189,412 165,983 367,255 292,058
COST OF PRODUCTS SOLD 157,279 139,464 303,887 243,827
-------- -------- -------- --------
GROSS PROFIT 32,133 26,519 63,368 48,231
SELLING, GENERAL AND ADMINISTRATIVE 22,318 19,279 45,207 36,510
DEPRECIATION AND AMORTIZATION 1,457 1,119 2,787 2,074
-------- -------- -------- --------
OPERATING INCOME 8,358 6,121 15,374 9,647
INTEREST EXPENSE 1,882 1,570 3,366 2,868
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 6,476 4,551 12,008 6,779
PROVISION FOR INCOME TAXES 2,590 1,821 4,803 2,712
-------- -------- -------- --------
NET INCOME $ 3,886 $ 2,730 $ 7,205 $ 4,067
======== ======== ======== ========
EARNINGS PER SHARE:
Basic $ 0.58 $ 0.41 $ 1.08 $ 0.61
======== ======== ======== ========
Diluted $ 0.57 $ 0.41 $ 1.07 $ 0.61
======== ======== ======== ========
Weighted average shares outstanding
Basic 6,646 6,644 6,646 6,644
======== ======== ======== ========
Diluted 6,812 6,660 6,757 6,660
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,205 $ 4,067
Adjustments to reconcile net income to net cash provided by operating
activities- net of acquisitions
Depreciation and amortization 3,576 2,074
Gain on sale of property and equipment (51) (62)
Provision for deferred income tax expense 992 347
Change in accounts receivable, net 1,152 2,814
Change in inventories (31,653) (13,388)
Change in prepaid expenses and other, net 84 (260)
Change in trade accounts payable 64 (817)
Change in accrued expenses (4,672) 2,681
-------- --------
Net cash used in operating activities (23,303) (2,544)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (18,046) (7,719)
Proceeds from the sale of property and equipment 478 186
Business acquisitions -- (5,817)
Change in other assets (1,688) 532
-------- --------
Net cash used in investing activities (19,256) (12,818)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 14,076 14,105
Principal payments on debt (7,357) (3,050)
Draws on floor plan notes payable, net 26,332 10,305
-------- --------
Net cash provided by financing activities 33,051 21,360
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,508) 5,998
CASH AND CASH EQUIVALENTS, beginning of period 22,516 19,816
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 13,008 $ 25,814
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 3,888 $ 2,958
======== ========
Income taxes $ 4,930 $ 2,205
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The interim consolidated financial statements included herein have been
prepared by Rush Enterprises, Inc. and 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 a certain individual for an
aggregate monthly payment of $2,225. The agreement expires November 2000.
6
<PAGE> 7
3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income- numerator for basic and diluted
earnings per share $3,886,000 $2,730,000 $7,205,000 $4,067,000
Denominator:
Denominator for basic earnings per share-
weighted average shares 6,646,488 6,643,730 6,646,488 6,643,730
Effect of dilutive securities:
Employee and Director stock options 165,083 16,637 110,107 16,637
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share-adjusted weighted average shares 6,811,571 6,660,367 6,756,595 6,660,367
========== ========== ========== ==========
Basic earnings per share $ .58 $ .41 $ 1.08 $ .61
========== ========== ========== ==========
Diluted earnings per share $ .57 $ .41 $ 1.07 $ .61
========== ========== ========== ==========
</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 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 June 30, 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 and six months ended June 30, 1999 and 1998: (in
thousands)
<TABLE>
<CAPTION>
HEAVY-DUTY CONSTRUCTION
TRUCK EQUIPMENT
SEGMENT SEGMENT ALL OTHER TOTALS
---------- ------------ --------- ------
<S> <C> <C> <C> <C>
Three months ended June 30, 1999
Revenues from external customers $162,360 $ 20,045 $ 7,007 $189,412
Segment income before taxes 5,766 394 316 6,476
Segment assets 170,850 65,771 20,719 257,340
Six months ended June 30, 1999
Revenues from external customers $315,605 $ 37,450 $ 14,200 $367,255
Segment income before taxes 10,632 614 762 12,008
Segment assets 170,850 65,771 20,719 257,340
Three months ended June 30, 1998
Revenues from external customers $146,795 $ 12,420 $ 6,768 $165,983
Segment income before taxes 4,161 222 168 4,551
Segment assets 130,313 36,696 18,618 185,627
Six months ended June 30, 1998
Revenues from external customers $257,659 $ 24,276 $ 10,123 $292,058
Segment income before taxes 6,252 224 303 6,779
Segment assets 130,313 36,696 18,618 185,627
</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.
5 - SUBSEQUENT EVENTS
In July 1999, the Company, signed letters of intent with Southwest
Peterbilt, Inc. (Southwest) and Norm Pressley Truck Center, Inc. (Pressley), to
purchase the assets of eight Peterbilt dealerships in the southwestern United
States. The Southwest and Pressley acquisitions, subject to customary closing
conditions, are expected to close on October 1, 1999 and December 1, 1999,
respectively.
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 27A of the Securities Act of 1933
and Section 21E of the Exchange Act of 1934. 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 was incorporated in Texas in 1965 and currently
consists of a Heavy Duty Truck segment and a Construction Equipment segment. The
Heavy Duty Truck segment operates a regional network of truck centers in Texas,
California, Oklahoma, Colorado and Louisiana that provide an integrated one-stop
source for the trucking needs of its customers, including retail sales of new
and used Peterbilt 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 network of equipment centers in Texas
and Michigan, whose 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 also operates a retail division
selling farm and ranch supplies through its acquisition in March 1998, for
approximately $10.5 million, of D&D Farm and Ranch Supermarket in the San
Antonio, Texas area.
The Company has undertaken significant acquisitions and expansion efforts
in both the Heavy Duty Truck and Construction Equipment segments in the past two
years. Its growth strategy is to realize economies of scale, favorable
purchasing power and cost savings in centralized management through acquisitions
and growth inside existing territories. There can be no assurance, however, that
as the Company continues to develop its networks, it will realize these
benefits.
9
<PAGE> 10
In 1997, the Company acquired two full service Peterbilt dealerships in
Denver and Greeley, Colorado, for approximately $7.9 million and opened a new
full service Peterbilt dealership in Pharr, Texas. In 1998 it opened a used
truck sales lot in Austin, Texas and expanded and relocated its facilities in
Laredo, Texas and Bosier City, Louisiana.
In 1997, the Company acquired its first full service John Deere
dealership in Houston, Texas for approximately $30.2 million. In 1998 it opened
a combination heavy duty truck and construction equipment dealership in
Beaumont, Texas, a location positioned to take advantage of synergies between
heavy duty truck and construction equipment customers in the Houston Gulf Coast
area. In 1998, the Company also acquired four John Deere dealerships covering 54
counties in western Michigan through the acquisition of Klooster Equipment, Inc.
for approximately $13.1 million.
In July 1999, the Company, signed letters of intent with Southwest
Peterbilt, Inc. (Southwest) and Norm Pressley Truck Center, Inc. (Pressley), to
purchase the assets of eight Peterbilt dealerships in the southwestern United
States. The Company anticipates the purchase price for Southwest will be
approximately $9.5 million for the net book value of acquired assets, plus $17.0
million in goodwill. An additional $4.0 million may be paid based on a
performance-based objective. The Company anticipates the purchase price for
Pressley will be approximately $2.5 million for the net book value of acquired
assets plus $2.9 million in goodwill. An additional $700,000 may be paid based
on a performance-based objective.
These acquisitions and expansions are to take advantage of increasing truck
traffic along major highway corridors in the South and Southwest and border
traffic between the U.S. and Mexico. The Southwest and Pressley acquisitions,
subject to executing the definitive purchase agreements and to customary closing
conditions, are expected to close on October 1, 1999 and December 1, 1999,
respectively.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's historical
results of operations for the three and six months ended June 30, 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
New and used truck sales 68.4% 70.7% 68.4% 69.3%
Parts and service 16.6 16.3 16.8 17.3
Construction equipment sales 6.8 6.0 6.7 6.1
Lease and rental 3.3 2.5 3.1 3.1
Finance and insurance 2.0 1.8 2.0 1.8
Retail sales 2.4 2.6 2.5 1.9
Other 0.5 0.1 0.5 0.5
-------- -------- -------- --------
Total revenues 100.0 100.0 100.0 100.0
Cost of products sold 83.0 84.0 82.7 83.5
-------- -------- -------- --------
Gross profit 17.0 16.0 17.3 16.5
Selling, general and
administrative expenses 11.8 11.6 12.3 12.5
Depreciation and amortization 0.8 0.7 0.8 0.7
-------- -------- -------- --------
Operating income 4.4 3.7 4.2 3.3
Interest expense 1.0 1.0 0.9 1.0
-------- -------- -------- --------
Income before income taxes 3.4 2.7 3.3 2.3
Provision for income taxes 1.4 1.1 1.3 0.9
-------- -------- -------- --------
Net income 2.0% 1.6% 2.0% 1.4%
======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues
Revenues increased by approximately $23.4 million, or 14.1%, from
$166.0 million to $189.4 million from the second quarter of 1998 to the second
quarter of 1999. Approximately, $10.0 million in sales is attributable to the
addition of the Michigan John Deere construction equipment dealership, while the
remaining increase of $13.4 million or 8.1%, is attributable to same store
growth. Sales of new and used trucks increased by approximately $12.2 million,
or 10.4%, from $117.4 million to $129.6 million from the second quarter of 1998
to the second quarter of 1999. Unit sales of new and used trucks increased by
2.0% and 4.0%, respectively, from the second quarter of 1998 to the second
quarter of 1999, while new truck average revenue per unit increased by 8.7% and
used truck average revenue per unit increased by 4.1%. Quarterly unit deliveries
are affected by manufacturing schedules and the timing of fleet deliveries.
Average new truck prices increased due to a change in product mix and customary
price increases. Used truck prices increased due to a change in product mix and
increased demand for late model products.
Parts and service sales increased by approximately $4.4 million, or
16.4%, from $27.1 million to $31.5 million. The increase was due to same store
growth of $2.0 million or 7.4%, and parts and service sales of $2.4 million from
the Michigan John Deere construction equipment dealership.
11
<PAGE> 12
Sale of new and used construction equipment increased approximately
$2.8 million, or 28.6% from $10.0 million to $12.8 million from the second
quarter of 1998 to the second quarter of 1999. The increase is primarily due to
the acquisition of the Michigan John Deere construction equipment store. New and
used equipment unit sales were 104 and 52, respectively, during the second
quarter of 1999, compared to 77 and 40 during the second quarter of 1998.
Lease and rental revenues increased by approximately $2.1 million, or
51.5% from $4.2 million to $6.3 million. Truck lease and rental revenue
increased approximately $294,000 or 7.8%, lease and rental revenue from the
Houston construction equipment store increase approximately $657,000 or 173.8%,
while the crane lease and rentals and the addition of the Michigan construction
equipment store added $152,000 and $980,000 in lease and rental revenues
respectively.
Finance and insurance revenues increased by approximately $836,000, or
27.5%, from $3.1 million to $3.9 million from the second quarter of 1998 to the
second quarter of 1999. The increase resulted from the increase in truck
revenues and rate increases. Finance and insurance revenues have limited direct
costs and, therefore, contribute a disproportionate share of operating profits.
Gross Profit
Gross profit increased by approximately $5.6 million, or 21.2%, from
$26.5 million to $32.1 million from the second quarter of 1998 to the second
quarter of 1999. Gross profit as a percentage of sales increased from 16.0% in
the second quarter of 1998 to 17.0% in the second quarter of 1999. The increase
in gross profit as a percentage of sales was a result of a change in sales mix.
Construction equipment and finance and insurance sales are higher margin profit
centers and increased as a percentage of revenues, while truck sales, a lower
margin profit center, decreased as a percentage of revenues.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by approximately
$3.0 million, from $19.3 million to $22.3 million, or 15.8%, from the second
quarter of 1998 to the second quarter of 1999. The increase resulted from
approximately $1.6 million of selling, general and administrative expense
related to the acquisition and integration of the Michigan John Deere
construction equipment dealership, and increased sales commissions resulting
from increased gross margins. Selling, general and administrative expenses as a
percentage of sales increased slightly from 11.6% to 11.8% from the second
quarter of 1998 to the second quarter of 1999.
Interest Expense
Interest expense increased by approximately $312,000 or 19.9%, from
$1.6 million to $1.9 million, from the second quarter of 1998 to the second
quarter of 1999, primarily as the result of increased levels of indebtedness due
to higher floor plan liability levels, and additional real estate and leased
unit borrowings.
Income before Income Taxes
Income before income taxes increased by $1.9 million, or 42.3%, from
$4.6 million to $6.5 million from the second quarter of 1998 to the second
quarter of 1999, as a result of the factors described above.
Income Taxes
The Company has provided for taxes at a 40% effective rate.
12
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues
Revenues increased by approximately $75.2 million, or 25.7%, from
$292.1 million to $367.3 million from the first six months of 1998 to the first
six months of 1999. Sales of new and used trucks increased by approximately
$48.9 million, or 24.2%, from $202.4 million to $251.3 million from the first
six months of 1998 to the first six months of 1999. Unit sales of new and used
trucks increased by 19.2% and 5.7%, respectively, from the first six months of
1998 to the first six months of 1999, while new and used truck average revenue
per unit increased by 5.8% and 9.9%, respectively . Average new truck prices
increased due to a change in product mix and customary price increases. Used
truck prices increased due to a change in product mix and increased demand for
late model products.
Parts and service sales increased by approximately $11.2 million, or
22.3%, from $50.4 million to $61.6 million. The increase consisted of same store
growth of $6.9 million or 13.7%, and parts and service sales associated with
addition of the Michigan John Deere construction equipment dealership of $4.3
million.
Sale of new and used construction equipment increased approximately
$6.7 million, or 37.3% from $17.9 million to $24.6 million from the first six
months of 1998 to the first six months of 1999. The increase is primarily due to
the acquisition of the Michigan John Deere construction equipment store. New and
used equipment unit sales were 208 and 108, respectively, during the first six
months of 1999, compared to 119 and 92 during the first six months of 1998.
Lease and rental revenues increased by approximately $2.3 million, or
26.3% from $9.0 million to $11.3 million. The increase was due to $1.2 million
of lease and rental revenues generated by the Michigan John Deere dealership
acquired in September 1998, and same store growth in revenues of $1.1 million or
12.2%.
Finance and insurance revenues increased by approximately $2.1 million,
or 39.0%, from $5.4 million to $7.5 million from the first six months of 1998 to
the first six months of 1999. The increase resulted from the increase in truck
revenues and rate increases. Finance and insurance revenues have limited direct
costs and, therefore, contribute a disproportionate share of operating profits.
Gross Profit
Gross profit increased by approximately $15.1 million, or 31.4%, from
$48.2 million to $63.3 million from the first six months of 1998 to the first
six months of 1999. Gross profit as a percentage of sales increased from 16.5%
to 17.3% from the first six months of 1998 to the first six months of 1999. The
increase in gross profit as a percentage of sales was a result of a change in
sales mix. Construction equipment and finance and insurance sales are higher
margin profit centers and increased as a percentage of revenues, while truck
sales, a lower margin profit center, decreased as a percentage of revenues.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by approximately
$8.7 million, from $36.5 million to $45.2 million, or 23.8%, from the first six
months of 1998 to the first six months of 1999. The increase resulted from
approximately $3.3 million of selling, general and administrative expenses
related to the acquisition and integration of the Michigan John Deere
construction equipment dealership, and D & D Farm and Ranch Supermarket, Inc..
Additionally, commissions increased due to increased gross margins. Selling,
general and administrative expenses as a percentage of revenue decreased from
12.5% in the first six months of 1998 to 12.3% in the first six months of 1999.
13
<PAGE> 14
Interest Expense
Interest expense increased by approximately $498,000 from $2.9 million
to $3.4 million, or 17.4%, from the first six months of 1998 to the first six
months of 1999, primarily as the result of increased levels of indebtedness due
to higher floor plan liability levels, and additional real estate and leased
unit borrowings.
Income before Income Taxes
Income before income taxes increased by $5.2 million, or 77.1% from
$6.8 million to $12.0 million from the first six months of 1998 to the first six
months 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 June 30, 1999, the Company had working capital of approximately
$17.9 million, including $13.0 million in cash and cash equivalents, $18.3
million in accounts receivable, $138.8 million in inventories, and $0.5 million
in prepaid expenses and other, less $22.4 million of trade accounts payable and
accrued expenses, $5.9 million of current maturities of long-term debt, $8.9
million in a note payable to a shareholder, and $115.5 million outstanding under
floor plan financing. The aggregate maximum borrowing limits under working
capital lines of credit with the Company's primary lender is approximately $8.0
million. The Company's floor plan agreements with various finance providers
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 six months of 1999, operating activities resulted in net
cash used in operations of approximately $23.3 million. Net income of $7.2
million, a decrease in accounts receivable of $1.2 million, coupled with
provisions for depreciation, amortization and deferred taxes totaling $4.6
million was more than offset by a decrease in accrued expenses of $4.7 million,
and an increase in inventories of $31.6 million.
For the first six months of 1998, operating activities used $2.5
million of cash. Net income of $4.1 million, a decrease in accounts receivable
of $2.8 million, an increase in accrued expenses of $2.7 million and provisions
for depreciation, amortization, and deferred taxes totaling $2.4 million was
more than offset by a decrease in other current assets of $260,000, and
increases in inventories of $13.4 million and accounts payable of $817,000.
During the first six months of 1999, the Company used $19.3 million in
investing activities, including purchases of property, plant and equipment of
$18.1 million and an increase in other assets of $1.7 million, offset by
proceeds from the sale of property, plant and equipment of $0.5 million.
During the first six months of 1998, the Company used $12.8 million for
investing activities, primarily due to property and equipment additions and the
acquisition of D & D Farm and Ranch Supermarket, Inc.
Net cash generated from financing activities in the first six months of
1999 amounted to $33.1 million. Proceeds from additional floor plan financing
and increased notes payable of $40.4 million more than offset principal payments
on notes payable of $7.3 million.
14
<PAGE> 15
For the first half of 1998, net cash provided by financing activities
amounted to $21.4 million. Increases in notes payable and floor plan liability
of $14.1 million and $10.3 million, respectively, more than offset principal
payments on notes payable of $3.0 million.
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 June 30, 1999, the Company had
approximately $72.8 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-half 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 June
30, 1999, the Company's floor plan arrangement with Associates Commercial Corp.
permits the financing of up to $25 million in construction equipment. At June
30, 1999, the Company had $27.6 million and $15.2 million, outstanding under its
floor plan financing arrangements with John Deere and Associates Commercial
Corp., respectively.
15
<PAGE> 16
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 June
30, 1999, and 1998, were approximately $185 million and $175 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. 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.
16
<PAGE> 17
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.
The primary operating systems of the Company are Karmak and PFW. The Company
believes, based upon representations made by the vendors of Karmak and PFW, that
both operating systems are currently year 2000 compliant.
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
17
<PAGE> 18
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 3. 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 June 30, 1999, the Company had
floor plan borrowings of approximately $115,544,000. Assuming a change in the
Prime Rate of interest of 100 basis points, future cash flows would be effected
by $1,155,000. The interest rate variability on all other debt would not have a
material adverse effect on the Company's financial statements. The Company
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.
18
<PAGE> 19
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
(a) The Annual Meeting of Shareholders was held on May
18, 1999.
(b) The following directors were elected to serve until
the next Annual Meeting of Shareholders on until
their successors have been elected and qualified:
W. Marvin Rush W.M. "Rusty" Rush
Robin M. Rush Harold D. Marshall
Ronald J. Krause John D. Rock
(c) (1) The director's in (b) above were elected by the
following number of votes:
<TABLE>
<CAPTION>
NAME NUMBER OF VOTES NUMBER OF VOTES WITHHELD
---- --------------- ------------------------
<S> <C> <C>
W. Marvin Rush 6,140,757 3,090
W.M. "Rusty" Rush 6,140,757 3,090
Robin M. Rush 6,140,757 3,090
Ronald J. Krause 6,140,757 3,090
John D. Rock 6,140,757 3,090
Harold D. Marshall 6,140,757 3,090
</TABLE>
(2) Of the 6,143,587 number of shares of Common Stock
voting at the meeting, 6,140,587 shares voted for the
ratification of the appointment of the firm Arthur
Andersen L.L.P. as the Company's independent
accountants for 1999. The number of shares that voted
against the ratification was 1,400, the holders of
1,860 shares abstained from the voting, and 260
shares were unvoted.
19
<PAGE> 20
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
27.1* Financial data schedule
</TABLE>
* Filed herewith
b) Reports on Form 8-K
None
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
RUSH ENTERPRISES, INC.
Date: August 13, 1999 By: /s/ W. MARVIN RUSH
----------------------------------------
Name: W. Marvin Rush
Title: Chairman and Chief Executive
Officer
(Principal Executive Officer)
Date: August 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)
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RUSH ENTERPRISES, INC FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,008
<SECURITIES> 0
<RECEIVABLES> 18,326
<ALLOWANCES> 0
<INVENTORY> 138,793
<CURRENT-ASSETS> 170,650
<PP&E> 82,340
<DEPRECIATION> (13,485)
<TOTAL-ASSETS> 257,340
<CURRENT-LIABILITIES> 152,712
<BONDS> 41,924
0
0
<COMMON> 66
<OTHER-SE> 60,008
<TOTAL-LIABILITY-AND-EQUITY> 257,340
<SALES> 367,255
<TOTAL-REVENUES> 367,255
<CGS> 303,887
<TOTAL-COSTS> 351,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,366
<INCOME-PRETAX> 12,008
<INCOME-TAX> 4,803
<INCOME-CONTINUING> 7,205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,205
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.57
</TABLE>
