<PAGE>
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 SEPTEMBER 30, 2000
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.)
555 IH 35 South
New Braunfels, TX 78130
(Address of principal executive offices)
(Zip Code)
(830)626-5200
(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 November 7, 2000.
Number of
Shares
Title of Class Outstanding
-------------- -----------
Common Stock, $.01 Par Value 7,002,044
<PAGE>
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets - September 30, 2000 (unaudited) and December 31, 1999. . 3
Consolidated Statements of Income - For the Three and Nine Months
Ended September 30, 2000 and 1999 (unaudited) . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows - For the Nine Months Ended
September 30, 2000 and 1999 (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 . . . . . . . . . . . . .16
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
</TABLE>
2
<PAGE>
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Audited)
---------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,445 $ 20,004
Accounts receivable, net 28,413 29,767
Inventories 187,490 173,565
Prepaid expenses and other 914 736
--------- ----------
Total current assets 230,262 224,072
PROPERTY AND EQUIPMENT, net 122,560 103,426
OTHER ASSETS, net 38,186 38,198
--------- ---------
Total assets $ 391,008 $ 365,696
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable $ 162,160 $ 150,862
Current maturities of long-term debt 6,783 8,463
Advances outstanding under lines of credit 30,719 10,953
Trade accounts payable 10,507 9,710
Accrued expenses 16,350 20,516
Note payable to shareholder - 20,725
--------- ----------
Total current liabilities 226,519 221,229
LONG-TERM DEBT, net of current maturities 77,903 65,414
DEFERRED INCOME TAXES, net 6,827 4,201
COMMITMENTS AND CONTINGENCIES (Note 2)
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares
outstanding in 2000 and 1999 - -
Common stock, par value $.01 per share; 25,000,000 shares authorized; 7,002,044
shares outstanding in 2000 and 1999 70 70
Additional paid-in capital 39,155 39,155
Retained earnings 40,534 35,627
--------- ----------
Total shareholders' equity 79,759 74,852
--------- ----------
Total liabilities and shareholders' equity $ 391,008 $ 365,696
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------- ------------ ------------
REVENUES:
<S> <C> <C> <C> <C>
New and used truck sales $144,128 $149,931 $444,652 $401,222
Parts and service 47,693 32,949 133,346 94,567
Construction equipment sales 18,388 16,592 56,799 41,191
Lease and rental 7,845 6,936 22,196 18,273
Finance and insurance 1,278 3,326 6,503 10,829
Retail sales 7,334 4,454 19,381 13,565
Other 703 656 2,980 2,452
------------ ------------- ------------ ------------
TOTAL REVENUES 227,369 214,844 685,857 582,099
COST OF PRODUCTS SOLD 186,009 181,179 568,260 485,066
------------ ------------- ------------ ------------
GROSS PROFIT 41,360 33,665 117,597 97,033
SELLING, GENERAL AND ADMINISTRATIVE 30,935 23,229 90,952 68,436
DEPRECIATION AND AMORTIZATION 2,502 1,483 6,829 4,270
------------ ------------- ------------ ------------
OPERATING INCOME 7,923 8,953 19,816 24,327
INTEREST EXPENSE 4,426 1,977 11,637 5,343
------------ ------------- ------------ ------------
INCOME BEFORE INCOME TAXES 3,497 6,976 8,179 18,984
PROVISION FOR INCOME TAXES 1,399 2,791 3,272 7,594
------------ ------------- ------------ ------------
NET INCOME $ 2,098 $ 4,185 $ 4,907 $ 11,390
============ ============= ============ ============
EARNINGS PER SHARE:
Basic $ 0.30 $ 0.63 $ 0.70 $ 1.71
============ ============= ============ ============
Diluted $ 0.30 $ 0.61 $ 0.70 $ 1.68
============ ============= ============ ============
Weighted average shares outstanding
Basic 7,002 6,646 7,002 6,646
============ ============= ============ ============
Diluted 7,002 6,860 7,030 6,799
============ ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
RUSH ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 4,907 $ 11,390
Adjustments to reconcile net income to net cash provided by (used in)
operating activities- net of acquisitions
Depreciation and amortization 9,738 5,702
Gain on sale of property and equipment (803) (80)
Provision for deferred income tax expense 2,626 1,938
Change in accounts receivable, net 1,354 (5,676)
Change in inventories (12,855) (26,450)
Change in prepaid expenses and other, net (36) 219
Change in trade accounts payable 797 1,584
Change in accrued expenses (4,195) (3,990)
----------- -----------
Net cash provided by (used in) operating activities 1,533 (15,363)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (29,330) (30,428)
Proceeds from the sale of property and equipment 2,785 1,112
Business acquisitions (2,236) (4,113)
Change in other assets (459) (2,059)
---------- ----------
Net cash used in investing activities (29,240) (35,488)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 23,075 27,870
Principal payments on long-term debt (32,991) (7,880)
Draws on lines of credit, net 19,766 -
Draws on floor plan notes payable, net 11,298 38,262
---------- ----------
Net cash provided by financing activities 21,148 58,252
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,559) 7,401
CASH AND CASH EQUIVALENTS, beginning of period 20,004 22,516
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 13,445 $ 29,917
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 13,933 $ 5,298
========= =========
Income taxes $ 3,155 $ 7,164
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
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, 1999.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements" which provides the Staff's views in applying generally accepted
accounting principles to selected revenue recognition issues. SAB No. 101 is
required to be implemented no later than the fourth quarter of fiscal years
beginning after December 15, 1999. The Company has reviewed the guidance
contained in SAB No. 101 and believes that its current accounting policies
and disclosures are appropriate and address the requirements of SAB No. 101.
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 2000 limited to $700,000.
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 the Company is a
party would have a material adverse effect on the Company's financial position
or results of operations; however, due to the inherent uncertainty of
litigation, there can be no assurance that the resolution of any particular
claim or proceeding would not have a material adverse effect on the Company's
results of operations for the fiscal period in which such resolution occurred.
6
<PAGE>
3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
--------------- -- ----------------- --------------- -- ---------------
<S> <C> <C> <C> <C>
Numerator:
Net income- numerator for basic and diluted
earnings per share $ 2,098,000 $ 4,185,000 $ 4,907,000 $ 11,390,000
=============== ================= =============== ===============
Denominator:
Denominator for basic earnings per share-
weighted average shares 7,002,044 6,646,488 7,002,044 6,646,488
Effect of dilutive securities:
Employee and Director stock options - 213,088 27,508 152,593
--------------- ----------------- --------------- ---------------
Denominator for diluted earnings per
share-adjusted weighted average shares 7,002,044 6,859,576 7,029,552 6,799,081
=============== ================= ============= ===============
Basic earnings per share $ .30 $ .63 $ .70 $ 1.71
=============== ================= =============== ===============
Diluted earnings per share $ .30 $ .61 $ .70 $ 1.68
=============== ================= =============== ===============
</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 Company has two reportable segments: the Heavy-Duty Truck segment
and the Construction Equipment segment. The Heavy-duty Truck segment operates a
regional network of truck centers that provide an integrated one-stop source for
the trucking needs of its customers, including retail sales of new Peterbilt and
used heavy-duty trucks, after-market parts, service and body shop facilities,
and a wide array of financial services, including the financing of new and used
truck purchases, insurance products and truck leasing and rentals. The
Construction Equipment segment, formed during 1997, operates full-service John
Deere dealerships that serve the Houston, Texas Metropolitan and surrounding
areas and a majority of the counties in Michigan. Dealership operations include
the retail sale of new and used equipment, after-market parts and service
facilities, equipment rentals, and the financing of new and used equipment.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in the Company's Annual Report
on Form 10-K. The Company evaluates performance based on income before income
taxes not including extraordinary items.
The Company accounts for intersegment sales and transfers as if the
sales or transfers were to third parties, that is, at current market prices.
There were no material intersegment sales during the three and nine months ended
September 30, 2000 and 1999.
7
<PAGE>
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 nine months ended September 30, 2000 and 1999:
(in thousands)
<TABLE>
<CAPTION>
HEAVY-DUTY CONSTRUCTION
TRUCK EQUIPMENT
SEGMENT SEGMENT ALL OTHER TOTALS
---------- ------------ --------- ------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenues from external customers $ 190,250 $ 27,419 $ 9,700 $ 227,369
Segment income (loss) before taxes 3,768 73 (344) 3,497
Segment assets 290,263 66,221 34,524 391,008
NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenues from external customers $ 577,888 $ 82,041 $ 25,928 $ 685,857
Segment income (loss) before taxes 8,375 422 (618) 8,179
Segment assets 290,263 66,221 34,524 391,008
THREE MONTHS ENDED SEPTEMBER 30, 1999
Revenues from external customers $ 183,837 $ 24,566 $ 6,441 $ 214,844
Segment income before taxes 6,156 337 483 6,976
Segment assets 204,913 74,119 17,840 296,872
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues from external customers $ 499,442 $ 62,016 $ 20,641 $ 582,099
Segment income before taxes 16,788 951 1,245 18,984
Segment assets 204,913 74,119 17,840 296,872
</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>
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. 333-03346) 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, Louisiana, Arizona and New Mexico. The
Company is the largest Peterbilt truck dealer in the United States, representing
approximately 16.0% of all new Peterbilt truck sales in 1999, 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.
Since commencing operations as a John Deere dealer in 1997, the Company
has grown to operate seven Rush Equipment Centers located in Texas and Michigan.
The Company provides a full line of construction equipment for light to medium
sized applications, with the primary products including John Deere backhoe
loaders, hydraulic excavators, crawler dozers and four wheel drive loaders.
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>
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 September 2000, the Company purchased all the assets of Smith
Brothers Catalogs, Inc., and its' online western superstore-Smithbros.com,
(collectively "Smithbrothers"). The acquisition provides Rush with
Smithbrothers' current list of over 120,000 customers and the technology to
offer D&D's expansive inventory through a catalog and online. The transaction
was valued at approximately $2.3 million with the purchase price paid in cash.
In December 1999, the Company purchased substantially all the assets of
Norm Pressley's Truck Center, ("Pressley"), which consisted of three dealership
locations in San Diego, Escondido and El Centro, California. The transaction was
valued at approximately $4.5 million with the purchase price paid in cash. An
additional $700,000 consideration may be paid based on a performance based
objective.
In October 1999, the Company purchased substantially all the assets of
Southwest Peterbilt, Inc., Southwest Truck Center, Inc., and New Mexico
Peterbilt, Inc., ("Southwest") a Peterbilt truck dealer, which consisted of five
dealership locations in Arizona and New Mexico. The transaction was valued at
$23.9 million with the purchase price paid in a combination of cash and the
Company's common stock. An additional $4.0 million may be paid based on a
performance based objective.
In September 1999, the Company acquired substantially all the assets of
Calvert Sales, Inc., (Calvert), a John Deere construction equipment dealership.
The acquisition encompasses 13 counties in eastern Michigan, including two
full-service dealerships located in the Detroit and Flint areas. The transaction
was valued at $11.1 million with the purchase price paid in a combination of
cash and notes payable.
In March 1998, the Company acquired all of the issued and 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 and has recently opened
a second store in the Greater Houston, Texas area.
10
<PAGE>
RESULTS OF OPERATIONS
The following discussion and analysis is of the Company's results of
operations for the three and nine months ended September 30, 2000 and 1999.
The following table sets forth for the periods indicated certain
financial data as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
New and used truck sales 63.4 % 69.8 % 64.8 % 68.9 %
Parts and service 21.0 15.3 19.5 16.3
Construction equipment sales 8.1 7.7 8.3 7.1
Lease and rental 3.4 3.2 3.2 3.1
Finance and insurance 0.6 1.6 1.0 1.9
Retail sales 3.2 2.1 2.8 2.3
Other 0.3 0.3 0.4 0.4
----------- ------------ ------------ ------------
Total revenues 100.0 100.0 100.0 100.0
Cost of products sold 81.8 84.3 82.8 83.3
----------- ------------ ------------ ------------
Gross profit 18.2 15.7 17.2 16.7
Selling, general and administrative
expenses 13.6 10.8 13.3 11.8
Depreciation and amortization 1.1 0.7 1.0 0.7
----------- ------------ ------------ ------------
Operating income 3.5 4.2 2.9 4.2
Interest expense 2.0 0.9 1.7 0.9
----------- ------------ ------------ ------------
Income before income taxes 1.5 3.3 1.2 3.3
Provision for income taxes 0.6 1.3 0.5 1.3
----------- ------------ ------------ ------------
Net income 0.9 % 2.0 % 0.7 % 2.0 %
=========== ============ ============ ============
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES
Revenues increased by approximately $12.6 million, or 5.9%, from $214.8
million to $227.4 million from the third quarter of 1999 to the third quarter of
2000. Approximately, $31.4 million in sales is attributable to the Southwest,
Pressley and Calvert acquisitions, resulting in a same store decrease of
approximately $18.8 million or 8.8%. Sales of new and used trucks decreased by
approximately $5.8 million, or 3.9%, from $149.9 million to $144.1 million from
the third quarter of 1999 to the third quarter of 2000. Unit sales of new and
used trucks increased by 6.1% and 3.7%, respectively, from the third quarter of
1999 to the third quarter of 2000, while new and used truck average revenue per
unit decreased by 10.7% and 13.2%, respectively. The decrease in the average
truck prices is due to an excess supply of used inventory in the market, and to
increased fuel prices. The Company estimates that its provisions for used truck
valuation and repossession losses, established through the second quarter, is
adequate to cover future losses that may arise, and thus made no additional
provision for such losses in the third quarter.
Parts and service sales increased by approximately $14.8 million, or
45.0%, from $32.9 million to $47.7 million from the third quarter of 1999 to the
third quarter of 2000. The increase was due to same store
11
<PAGE>
growth of $4.2 million or 12.8%, and parts and service sales of approximately
$10.6 million from the Southwest, Pressley and Calvert dealerships.
Sale of new and used construction equipment increased approximately
$1.8 million, or 10.8%, from $16.6 million to $18.4 million from the third
quarter of 1999 to the third quarter of 2000. The increase is primarily due to
the Calvert acquisition.
Lease and rental revenues increased by approximately $0.9
million, or 13.0% from $6.9 million to $7.8 million. The increase is primarily
due to the Calvert acquisition.
Finance and insurance revenues decreased by approximately $2.0 million,
or 60.6%, from $3.3 million to $1.3 million from the third quarter of 1999 to
the third quarter of 2000. The decrease is a result of there being
proportionately fewer truck deliveries to owner operators, who are the customers
most likely to purchase finance and insurance contracts, in comparison to truck
deliveries to fleet customers. Finance and insurance revenues have limited
direct costs and, therefore, contribute a disproportionate share of operating
profits.
Retail sales increased $2.9 million or 65.9% from $4.4 million to $7.3
million from the third quarter of 1999 to the third quarter of 2000, primarily
as a result of the opening of a second D & D store in the Greater Houston, Texas
area and the acquisition of Smithbrothers.
GROSS PROFIT
Gross profit increased by approximately $7.7 million, or 22.8%, from
$33.7 million to $41.4 million from the third quarter of 1999 to the third
quarter of 2000. Gross profit as a percentage of sales increased from 15.7% in
the third quarter of 1999 to 18.2% in the third quarter of 2000. The increase in
gross profit as a percentage of sales was a result of a change in sales mix.
Parts and service sales are higher margin profit centers and increased as a
percentage of revenues, while truck sales, lower margin profit centers,
decreased as a percentage of revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by approximately
$7.7 million, from $23.2 million to $30.9 million, or 33.2%, from the third
quarter of 1999 to the third quarter of 2000. The increase resulted from
approximately $5.6 million or 24.1% of selling, general and administrative
expense related to the Southwest, Pressley and Calvert acquisitions with the
remaining attributable to same store increases. Selling, general and
administrative expenses as a percentage of sales increased from 10.8% to 13.6%
from the third quarter of 1999 to the third quarter of 2000.
INTEREST EXPENSE
Interest expense increased by approximately $2.4 million or 120.0%,
from $2.0 million to $4.4 million, from the third quarter of 1999 to the third
quarter of 2000, 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 decreased by $3.5 million, or 50.0%, from
$7.0 million to $3.5 million from the third quarter of 1999 to the third quarter
of 2000, as a result of the factors described above.
INCOME TAXES
The Company has provided for taxes at a 40% effective rate.
12
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES
Revenues increased by approximately $103.8 million, or 17.8%, from
$582.1 million to $685.9 million from the first nine months of 1999 to the first
nine months of 2000. Sales of new and used trucks increased by approximately
$43.5 million, or 10.8%, from $401.2 million to $444.7 million from the first
nine months of 1999 to the first nine months of 2000. Unit sales of new and used
trucks increased by 16.4% and 1.6%, respectively, from the first nine months of
1999 to the first nine months of 2000, while new and used truck average revenue
per unit decreased by 0.5% and 13.9%, respectively. The decrease in the average
truck prices is due to an excess supply of used inventory in the market, and to
increased fuel prices.
Parts and service sales increased by approximately $38.7 million, or
40.9%, from $94.6 million to $133.3 million. The increase was due to same store
growth of approximately 8.6% and parts and service sales associated with
Southwest, Pressley and Calvert acquisitions.
Sale of new and used construction equipment increased approximately
$15.6 million, or 37.9% from $41.2 million to $56.8 million from the first nine
months of 1999 to the first nine months of 2000. The increase was due to same
store growth of approximately $6.2 million or 15.0% and new and used equipment
sales associated with the Calvert acquisition.
Lease and rental revenues increased by approximately $3.9 million, or
21.3 % from $18.3 million to $22.2 million from the first nine months of 1999 to
the first nine months of 2000. Approximately $3.1 million or 79.5% of the
increase was due to the Pressley and Calvert acquisitions with the remainder
attributable to same store growth.
Finance and insurance revenues decreased by approximately $4.3 million,
or 39.8%, from $10.8 million to $6.5 million from the first nine months of 1999
to the first nine months of 2000. The decrease is a result of there being
proportionately fewer truck deliveries to owner operators, who are the customers
most likely to purchase finance and insurance contracts, in comparison to truck
deliveries to fleet customers. Finance and insurance revenues have limited
direct costs and, therefore, contribute a disproportionate share of operating
profits.
Retail sales increased $5.8 million or 42.6% from $13.6 million to
$19.4 million from the first nine months of 1999 to the first nine months of
2000, primarily as a result of the opening of a second D & D store in the
Greater Houston, Texas area and the acquisition of Smithbrothers.
GROSS PROFIT
Gross profit increased by approximately $20.6 million, or 21.2%, from
$97.0 million to $117.6 million from the first nine months of 1999 to the first
nine months of 2000. Gross profit as a percentage of sales increased slightly
from 16.7% to 17.2% from the first nine months of 1999 to the first nine months
of 2000. The increase in gross profit as a percentage of sales was a result of a
change in sales mix. Parts and service sales are higher margin profit centers
and increased as a percentage of revenues, while truck sales, lower margin
profit centers, decreased as a percentage of revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by approximately
$22.5 million, from $68.4 million to $90.9 million, or 32.9%, from the first
nine months of 1999 to the first nine months of 2000. The increase resulted from
approximately $17.5 million or 25.6% of selling, general and administrative
expense related to the Southwest, Pressley and Calvert acquisitions with the
remaining attributable to same store increases. Selling, general and
administrative expenses as a percentage of revenue increased from 11.8% in the
first nine months of 1999 to 13.3% in the first nine months of 2000.
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INTEREST EXPENSE
Interest expense increased by approximately $6.3 million from $5.3
million to $11.6 million, or 118.9%, from the first nine months of 1999 to the
first nine months of 2000, 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 decreased by $10.8 million, or 56.8% from
$19.0 million to $8.2 million from the first nine months of 1999 to the first
nine months of 2000, 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 September 30, 2000, the Company had working capital of approximately
$3.8 million, including $13.5 million in cash and cash equivalents, $28.4
million in accounts receivable, $187.5 million in inventories, and $0.9 million
in prepaid expenses and other, less $26.8 million of trade accounts payable and
accrued expenses, $37.5 million of current maturities of long-term debt and
advances outstanding under lines of credit, and $162.2 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 $22.0
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 nine months of 2000, operating activities resulted in
net cash provided by operations of $1.5 million. Net income of $4.9 million,
a decrease in accounts receivable of $1.3 million, an increase in trade
accounts payable of $0.8 million coupled with provisions for depreciation,
amortization and deferred income taxes totaling $12.4 million offset an
increase in inventories and prepaid expenses and other of $12.9 million, a
decrease in accrued expenses of $4.2 million and a gain on sale of property
and equipment of $0.8 million.
For the first nine months of 1999, operating activities resulted in
net cash used in operations of approximately $15.4 million. Net income of
$11.4 million, an increase in prepaid expenses and other of $0.2 million, an
increase in trade accounts payable of $1.6 million, coupled with provisions
for depreciation, amortization and deferred income taxes totaling $7.6
million was more than offset by an increase in accounts receivable of $5.7
million, a decrease in accrued expenses of $4.0 million, and an increase in
inventories of $26.5 million.
During the first nine months of 2000, the Company used $29.2 million
in investing activities, including purchases of property and equipment of
$29.3 million, business acquisitions of $2.2 million, and an increase in
other assets of $0.5 million, offset by proceeds from the sale of property
and equipment of $2.8 million.
Net cash generated from financing activities in the first nine months
of 2000 amounted to $21.1 million. Proceeds from increased notes payable and
advances outstanding on lines of credit of $42.8 million and draws on floor plan
notes payable of $11.3 million, more than offset principal payments on notes
payable of $33.0 million.
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During the first nine months of 1999, the Company used $35.5 million in
investing activities, including purchases of property and equipment of $30.4
million, cash used in a business acquisition of $4.1 million and an increase in
other assets of $2.1 million, offset by proceeds from the sale of property and
equipment of $1.1 million.
Net cash generated from financing activities in the first nine months
of 1999 amounted to $58.3 million. Proceeds from additional floor plan financing
and increased notes payable of $38.3 million and $27.9 million, respectively,
more than offset principal payments on notes payable of $7.9 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 September 30, 2000, the Company had
approximately $116.5 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 three-quarters of one percent on overnight funds
deposited by the Company with GMAC.
Substantially all of the Company's new equipment purchases are financed
by either John Deere or Associates Commercial Corporation. The Company finances
all, or substantially all, of the purchase price of its new equipment inventory,
under its floor plan facilities. The agreement with John Deere provides interest
free financing for four months after which time the amount financed is required
to be paid in full, or an immediate 2.25% discount with payment due in 30 days.
When the equipment is sold prior to the expiration of the four month period, the
Company is required to repay the principal within approximately 10 days of the
sale. Should the equipment financed by John Deere not be sold within the four
month period, it is transferred to the Associates Commercial Corporation floor
plan arrangement. The Company makes principal payments to Associates Commercial
Corporation, for sold inventory, on the 15th day of each month. Used and rental
equipment, to a maximum of book value, is financed under a floor plan
arrangement with Associates Commercial Corporation. 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 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 September 30, 2000, the Company's
floor plan arrangement with Associates Commercial Corporation permits the
financing of up to $25 million in construction equipment. At September 30, 2000,
the Company had $32.3 million and $13.4 million outstanding under its floor plan
financing arrangements with John Deere and Associates Commercial Corporation,
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
September 30, 2000, and 1999, were approximately $100 million and $185 million,
respectively.
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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 have historically been 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.
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 September 30, 2000, the Company
had floor plan borrowings of approximately $162,160,000. Assuming an increase in
the Prime Rate of interest of 100 basis points, future cash flows could be
effected up to $1,621,600. 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.
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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
27.1* Financial data schedule
* Filed herewith
b) Reports on Form 8-K
None
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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: November 13, 2000 By: /S/ W. MARVIN RUSH
----------------------------------------
Name: W. Marvin Rush
Title: Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 By: /S/ MARTIN A. NAEGELIN, JR.
----------------------------------------
Name: Martin A. Naegelin, Jr.
Title: Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
