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 SEPTEMBER 30, 1996
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 333-3346
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RUSH ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1733016
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
8810 I.H. 10 East
San Antonio, Texas 78219
(Address of principal executive offices)
(Zip Code)
(210) 661-4511
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
--------------------
Indicated below is the number of shares outstanding of the
registrant's only class of common stock, as of November 11, 1996.
Number of
Shares
Title of Class Outstanding
-------------- -----------
Common Stock, $.01 Par Value 6,643,730
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996 (unaudited) and
December 31, 1995 (audited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income - For the Three Months and Nine Months
Ended September 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - For the Nine Months Ended
September 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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PART I
Item 1. Financial Statements
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1996 1995
ASSETS (Unaudited) (Audited)
------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 21,671 $ 2,149
Accounts receivable, net 16,549 16,411
Inventories 42,093 36,517
Prepaid expenses and other 437 266
------------ ------------
Total current assets 80,750 55,343
PROPERTY AND EQUIPMENT, net 21,608 17,560
OTHER ASSETS, net 3,269 3,176
------------ ------------
Total assets $ 105,627 $ 76,079
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Floorplan notes payable $ 39,664 $ 34,294
Current maturities of long-term debt 2,375 3,600
Advances outstanding under lines of credit 20 10
Trade accounts payable 9,115 7,591
Dividends payable -0- 1,615
Accrued expenses 4,520 7,607
------------ ------------
Total current liabilities 55,694 54,717
DEFERRED INCOME TAX LIABILITY, net 583 -0-
LONG-TERM DEBT, net of current maturities 14,269 13,677
SHAREHOLDERS' EQUITY:
Rush Enterprises, Inc., common stock, par value $.01 per
share; 25,000,000 shares authorized; 3,750,000 and
6,643,730 outstanding at December 31, 1995 and September 30,
1996, respectively. 66 38
Associated Acceptance, Inc., common stock, par value $1.00
per share; 750,000 shares authorized; 451,000 shares
outstanding at December 31, 1995. -0- 6
Additional paid-in capital 33,338 729
Retained earnings 1,677 6,912
============ ============
Total shareholders' equity 35,081 7,685
------------ ------------
Total liabilities and shareholders' equity $ 105,627 $ 76,079
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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4
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE - UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ -----------
REVENUES:
New and used truck sales $ 65,427 $ 47,276 $ 186,751 $ 142,747
Parts and service 16,414 13,422 48,359 39,492
Lease and rental 3,490 2,690 10,056 7,258
Finance and insurance 1,513 966 4,371 2,920
Other 772 319 1,393 918
------------ ----------- ------------ -----------
Total revenues 87,616 64,673 250,930 193,335
COST OF PRODUCTS SOLD 72,926 54,069 209,870 162,892
------------ ----------- ------------ -----------
GROSS PROFIT 14,690 10,604 41,060 30,443
SELLING, GENERAL AND ADMINISTRATIVE 10,595 7,890 30,283 22,972
DEPRECIATION AND AMORTIZATION 610 467 1,789 1,302
------------ ----------- ------------ -----------
OPERATING INCOME 3,485 2,247 8,988 6,169
INTEREST EXPENSE 1,038 692 3,083 1,921
MINORITY INTEREST -0- 49 -0- 162
------------ ----------- ------------ -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,447 1,506 5,905 4,086
PROVISION FOR INCOME TAXES 910 -0- 1,310 -0-
------------ ----------- ------------ -----------
INCOME FROM CONTINUING OPERATIONS 1,537 1,506 4,595 4,086
DISCONTINUED OPERATIONS:
Operating income(loss) -0- -0- -0- (224)
Gain on disposal -0- -0- -0- 1,785
============ =========== ============ ===========
NET INCOME $ 1,537 $ 1,506 $ 4,595 $ 5,647
============ =========== ============ ===========
UNAUDITED PRO FORMA DATA:
Income from continuing operations before income taxes $ 2,447 $ 1,506 $ 5,905 $ 4,086
Pro forma adjustments to reflect federal and state income taxes 910 572 2,244 1,553
------------ ----------- ------------ -----------
Proforma income from continuing operations after provision
for income taxes $ 1,537 $ 934 $ 3,661 $ 2,533
============ =========== ============ ===========
Pro forma income from continuing operations per share $ .23 $ .22 $ .70 $ .59
============ =========== ============ ===========
Weighted average shares outstanding used in the pro forma
income from continuing operations per share calculation 6,640 4,297 5,237 4,297
============ =========== ============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS - UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 4,595 $ 4,086
Adjustments to reconcile net income to cash provided
by (used in) continuing operations
Depreciation and amortization 1,789 1,302
Provision for deferred income tax expense 583 -0-
Minority interest -0- 162
Change in receivables (138) (7,983)
Change in inventories (5,576) (6,833)
Change in other current assets (171) (49)
Change in accounts payable 1,524 1,639
Change in accrued liabilities (3,090) (833)
---------- -----------
Net cash provided by (used in) continuing operations (484) (8,509)
Net cash provided by (used in) discontinued operations -0- 785
---------- -----------
Net cash provided by (used in) operating activities (484) (7,724)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (6,200) (3,195)
Proceeds from the sale of property and equipment 503 970
Proceeds from the sale of discontinued operations -0- 3,601
Investment by (purchase of) minority interest -0- (435)
Change in other assets (233) -0-
---------- -----------
Net cash provided by (used in) investing activities (5,930) 941
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock 31,364 -0-
Proceeds from notes payable 2,984 4,884
Principal payments on notes payable (3,617) (2,161)
Draws (payments) on floor plan financing, net 5,370 9,936
Draws (payments) on line of credit, net 10 (840)
Dividends paid (10,175) (3,285)
---------- -----------
Net cash provided by (used in) financing activities 25,936 8,534
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,522 1,751
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 2,149 851
---------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 21,671 $ 2,602
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for interest $ 3,261 $ 1,925
========== ===========
The accompanying notes are an integral part of these
consolidated financial tatements
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The interim consolidated financial statements included herein have
been prepared by Rush Enterprises, Inc. and subsidiaries (collectively referred
to as the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). All adjustments have been made
to the accompanying interim consolidated financial statements which are, in the
opinion of the Company's management, necessary for a fair presentation of the
Company's operating results. All adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. It is
recommended that these interim consolidated financial statements be read in
conjunction with the combined financial statements and the notes thereto
included in the Company's registration statement on Form S-1. Certain prior
period amounts have been reclassified for comparative purposes.
2 - CORPORATE REORGANIZATION AND COMMON STOCK OFFERING
The Company successfully completed an initial public offering (the
Offering) of 2,875,000 common shares on June 12, 1996. As part of this
transaction, the Company terminated its S corporation federal tax election and
was subject to federal and certain state income taxes from that date forward.
On June 12, 1996 the Company paid the S Corporation shareholder $6.5 million
representing the undistributed accumulated earnings of the S Corporation prior
to June 12, 1996.
Following the Offering there were 6,625,000 common shares outstanding,
including 3,750,000 owned by the shareholder of the predecessor S Corporation.
As part of the reorganization, the Company acquired as a wholly-owned
subsidiary a managing general agent (the "MGA") to manage all of the operations
of Associated Acceptance, Inc. ("AA"). The MGA is responsible for funding the
operations of AA, directing the use of AA's assets, and incurring liabilities
on AA's behalf in exchange for the MGA receiving any and all net income of AA.
W. Marvin Rush, the sole shareholder of AA, is prohibited from the sale or
transfer of the capital stock of AA under the MGA agreement, except as
designated by the Company. Therefore, the financial position and operations of
AA have been included as part of the Company's consolidated financial position
and results of operations.
3 - DEFERRED FEDERAL INCOME TAXES
Effective with the corporate reorganization on June 12, 1996 (see Note
2), the Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in a company's financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the differences between the financial statement
and tax bases of assets and liabilities using currently enacted tax rates in
effect for the years in which the differences are expected to reverse.
As a result of adopting SFAS 109, the Company reported Deferred Income
Tax Expense of $325,000 in the quarter ended June 30, 1996. Additional
temporary differences occurring during the quarter ended September 30, 1996
resulted in a year-to-date Deferred Tax Expense of $583,000 which is explained
below:
September 30, 1996
(in thousands)
------------------
Deferred tax assets - book expense
provisions in excess of tax $ 568
Deferred tax liabilities - tax
depreciation and amortization
in excess of book 1,151
-----
Net deferred tax liability $ 583
The Company did not record any valuation allowances against the
deferred income tax assets at September 30, 1996.
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4 - PRO FORMA INFORMATION (UNAUDITED)
Pro forma income from continuing operations and pro forma income from
continuing operations per share for the three and nine months ended September
30, 1995 and 1996, have been determined assuming that the Company had been
taxed as a C corporation for federal and certain state income tax purposes for
such periods.
Pro forma income from continuing operations per share had been
computed using the weighted average number of common shares outstanding of Rush
Enterprises, Inc. Weighted average common shares for all periods presented
prior to the Offering have been increased by 547,400 shares to reflect the
number of shares that would have to have been sold at the offering price per
share to repay an approximate $6,000,000 distribution of undistributed S
corporation earnings.
The pro forma effect of the retirement of debt associated with the
Offering of approximately $900,000 on pro forma income from continuing
operations per share would be immaterial. Thus, the Company has not presented
supplemental pro forma income from continuing operations per share data.
5 - PUBLIC OFFERING PROCEEDS
The following shows the disposition of cash received from the
Company's public offering.
(in thousands)
--------------
Cash and short-term investments $23,504
Payment of undistributed subchapter S
corporation earnings to subchapter S
shareholder 7,120
Payment of public offering expenses 781
Payoffs of long-term debt 680
-------
Offering proceeds - net of underwriting costs $32,085
Undistributed S corporation earnings were estimated at $6.5 million
and paid to the subchapter S shareholder at the June 12, 1996 reorganization
date. After the preparation of the S corporation shareholder tax returns,
during the quarter ended September 30, 1996 an additional $620,000 was paid to
the S corporation shareholder, bringing the final settlement of S corporation
earnings to $7.1 million.
The Company indicated in its registration statement on Form S-1 that
it intended to use a portion of the Offering proceeds to pay off approximately
$4.4 million of debt. Following the Offering, the Company was able to
renegotiate lower interest rates on $3.5 million of debt, and thus did not pay
off the entire intended amount. Cash reserves will be invested until required
for general corporate purposes, including working capital, funds for opening
additional locations and strategic acquisitions.
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PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations", including
statements regarding the anticipated development and expansion of the Company's
business, expenditures, the intent, belief or current expectations of the
Company, its directors or its officers, primarily with respect to the future
operating performance of the Company and other statements contained herein
regarding matters that are not historical facts, are "forward-looking"
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, those discussed in other filings made by the
Company with the Securities and Exchange Commission, including the factors set
forth in "Risk Factors" and "Business" in the Company's Registration Statement
on Form S-1(Registration No. 333-03346) filed on April 10, 1996, as amended.
The following comments should be read in conjunction with the
Company's consolidated financial statements and related notes included
elsewhere in this quarterly report on Form 10-Q.
GENERAL
Rush Enterprises operates a regional network of truck centers that
provide an integrated one-stop source for the trucking needs of its customers,
including retail sales of new Peterbilt and used heavy-duty trucks; parts,
service and body shop facilities; and a wide array of financial services,
including the financing of new and used truck purchases, insurance products and
truck leasing and rentals.
In February 1994, the Company purchased the assets of Engs Motor Truck
Company ("Engs"), which consisted of three full-service Peterbilt dealerships
located in Pico Rivera, Fontana and Ventura, California, and a parts store
located in Sun Valley, California. As part of the Company's acquisition
strategy, the Company closed the Ventura facility in August 1994, consolidating
its operations into the remaining facilities.
In March 1995, the Company sold an automobile dealership in San
Antonio, Texas. The financial results of this business are presented in the
financial statements for the nine months ended September 30, 1995, as
"discontinued operations".
In December 1995, the Company acquired the assets of Kerr
Consolidated, Inc., which consisted of a full-service Peterbilt dealership and
stand-alone leasing facility in Oklahoma City, Oklahoma, and a full-service
Peterbilt dealership in Tulsa, Oklahoma.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's
historical results of operations for the three months and nine months ended
September 30, 1995 and 1996, without giving effect to pro forma results of
operations for the Company's Oklahoma and California operations acquired in
December 1995 and February 1994, respectively, except as expressly indicated.
The following table sets forth for the periods indicated certain financial data
as a percentage of total revenues:
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Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1996 1995 1996
---- ---- ---- ----
New and used truck sales . . . . . . . . . . . . 73.1% 74.7% 73.8% 74.4%
Parts and service . . . . . . . . . . . . . . . 20.8 18.7 20.4 19.3
Lease and rental . . . . . . . . . . . . . . . . 4.1 4.0 3.8 4.0
Finance and insurance . . . . . . . . . . . . . 1.5 1.7 1.5 1.7
Other . . . . . . . . . . . . . . . . . . . . . .5 .9 .5 .6
----- ----- ----- -----
Total revenues . . . . . . . . . . . . . 100.0 100.0 100.0 100.0
Cost of products sold . . . . . . . . . . . . . 83.6 83.2 84.3 83.6
----- ----- ----- -----
Gross profit . . . . . . . . . . . . . . . . . . 16.4 16.8 15.7 16.4
Selling, general and administrative expenses . . 12.2 12.1 11.9 12.1
Depreciation and amortization . . . . . . . . . .7 .7 .6 .7
----- ----- ----- -----
Operating income . . . . . . . . . . . . . . . . 3.5 4.0 3.2 3.6
Interest expense . . . . . . . . . . . . . . . . 1.1 1.2 1.0 1.2
Minority interest . . . . . . . . . . . . . . . .1 -0- .1 -0-
----- ----- ----- -----
Income from continuing operations. . . . . . 2.3% 2.8% 2.1% 2.4%
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
Revenues
Revenues increased by approximately $22.9 million, or 35.5%, from
$64.7 million to $87.6 million from the third quarter of 1995 to the third
quarter of 1996. This increase was principally a result of the acquisition of
the Company's Oklahoma operations in December 1995. In addition, slight gains
were achieved in parts and service, lease and rental, and finance and insurance
operations at the Company's other locations.
Sales of new and used trucks increased by approximately $18.1 million,
or 38.4%, from $47.3 million to $65.4 million from the third quarter of 1995 to
the third quarter of 1996. The acquisition of the Oklahoma operations
contributed $13.4 million of new and used truck sales, which supplemented an
increase in new and used truck sales of $4.8 million at the Company's other
operations. Unit sales of new and used trucks increased by 41.4% and 44.2%,
respectively, from the third quarter of 1995 to the third quarter of 1996,
while new truck average revenue per unit decreased by 2.2% and used truck
average revenue per unit increased by 1.9%. 29.4% of the growth in new truck
unit sales and 25.9% of the growth in used truck unit sales was attributable to
the acquisition of the Company's Oklahoma operations. New truck prices
increased at a rate slightly higher than inflation and used truck prices
decreased due to an industry oversupply of used trucks in the market.
Parts and service sales increased by approximately $3.0 million, or
22.3%, from $13.4 million to $16.4 million primarily as a result of the
inclusion of the Oklahoma operations. The remaining increase was due to the
addition of 18 service and body shop bays during 1995 at the Company's
facilities in San Antonio, Texas (10), Lufkin, Texas (6) and Fontana,
California (2).
Lease and rental revenues increased by approximately $.8 million, or
29.7% from $2.7 million to $3.5 million, primarily as a result of the
acquisition of the Company's Oklahoma lease and rental operations in December
1995.
Finance and insurance revenues increased by approximately $547,000, or
56.6%, from $966,000 to $1.5 million from the third quarter of 1995 to the
third quarter of 1996. The majority of the increase resulted from lower
borrowing costs, with the balance of the increase resulting from the
acquisition of the Company's Oklahoma operations in December 1995. Finance and
insurance revenues have limited direct costs and, therefore, contribute a
disproportionate share of operating profits.
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Gross Profit
Gross profit increased by approximately $4.1 million, or 38.5%, from
$10.6 million to $14.7 million from the third quarter of 1995 to the third
quarter of 1996, primarily due to the increase in revenues from the Oklahoma
operations. Gross profit as a percentage of sales increased from 16.4% to
16.8% from the third quarter of 1995 to the third quarter of 1996. The net
increase in gross margins resulted from lower gross margins on new truck sales
being more than offset by higher gross margins from parts, service and body
shop operations.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by
approximately $2.7 million, from $7.9 million to $10.6 million, or 34.3%, from
the third quarter of 1995 to the third quarter of 1996. The majority of the
increase resulted from the acquisition of the Company's Oklahoma operations in
December 1995. Most of the remaining increase was due to increased truck sales
commissions. Selling, general and administrative expenses as a percent of
revenue were 12.1% for the third quarter of 1996 and 12.2% for the same quarter
of 1995.
Interest Expense
Interest expense increased by approximately $346,000 from $692,000 to
$1.0 million, or 50.0%, from the third quarter of 1995 to the third quarter of
1996, primarily as the result of increased levels of floor plan financing
associated with higher inventory levels at all locations and additional
inventories associated with the inclusion of the Company's Oklahoma operations
acquired in December 1995, and to a lesser extent from increases in interest
rates on the Company's variable-rate borrowings and higher average outstanding
debt balances.
Income from Continuing Operations
Income from continuing operations increased by $941,000, or 62.5% from
$1.5 million to $2.4 million from the third quarter of 1995 to the third
quarter of 1996, as a result of the factors described above.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Revenues
Revenues increased by approximately $57.6 million, or 29.8%, from
$193.3 million to $250.9 million from the first nine months of 1995 to the
first nine months of 1996. This increase was principally a result of the
acquisition of the Company's Oklahoma operations in December 1995. In
addition, slight gains were achieved in parts and service, lease and rental,
and finance and insurance operations at the Company's other locations.
Sales of new and used trucks increased by approximately $44.0 million,
or 30.8%, from $142.7 million to $186.7 million from the first nine months of
1995 to the first nine months of 1996. The acquisition of the Oklahoma
operations contributed $33.7 million of new and used truck sales, which
supplemented an increase in new and used truck sales of $10.3 million at the
Company's other operations. Unit sales of new and used trucks increased by
23.6% and 23.3%, respectively, from the first nine months of 1995 to the first
nine months of 1996, while new and used truck average revenue per unit
increased by 5.3% and 9.9%, respectively. All but 1% of the growth in new and
used truck unit sales was attributable to the acquisition of the Company's
Oklahoma operations. New truck prices increased at a rate slightly higher than
inflation and used truck prices decreased due to an industry oversupply of used
trucks in the market.
Parts and service sales increased by approximately $8.9 million, or
22.5%, from $39.5 million to $48.4 million primarily as a result of the
inclusion of the Oklahoma operations. The remaining increase was due to the
addition of 18 service and body shop bays during 1995 at the Company's
facilities in San Antonio, Texas (10), Lufkin, Texas (6) and Fontana,
California (2).
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Lease and rental revenues increased by approximately $2.8 million, or
38.6%, from $7.3 million to $10.1 million, primarily as the result of the
acquisition of the Company's Oklahoma lease and rental operations in December
1995.
Finance and insurance revenues increased by approximately $1.5
million, or 49.7%, from $2.9 million to $4.4 million from the first nine months
of 1995 to the first nine months of 1996. The majority of the increase
resulted from lower borrowing costs, with the balance of the increase resulting
from the acquisition of the Company's Oklahoma operations in December 1995.
Finance and insurance revenues have limited direct costs and, therefore,
contribute a disproportionate share of operating profits.
Gross Profit
Gross profit increased by approximately $10.6 million, or 34.9%, from
$30.5 million to $41.1 million from the first nine months of 1995 to the first
nine months of 1996, primarily due to the increase in revenues from the
Oklahoma operations. Gross profit as a percentage of sales increased from
15.7% to 16.4% from the first nine months of 1995 to the first nine months of
1996. The net increase in gross margins resulted from lower gross margins on
new truck sales being offset by higher gross margins from parts, service and
body shop operations.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased by
approximately $7.3 million, from $23.0 million to $30.3 million, or 31.8%, from
the first six months of 1995 to the first six months of 1996. The majority of
the increase resulted from the acquisition of the Company's Oklahoma operations
in December 1995. Most of the remaining increase was due to increased truck
sales commissions. Selling, general and administrative expenses as a percent
of revenue were 12.1% for the first half of 1996 and 11.9% for the same period
of 1995.
Interest Expense
Interest expense increased by approximately $1.2 million from $1.9
million to $3.1 million, or 60.5%, from the first nine months of 1995 to the
first nine months of 1996, primarily as the result of increased levels of floor
plan financing associated with higher inventory levels at all locations,
additional inventories associated with the inclusion of the Company's Oklahoma
operations acquired in December 1995, and to a lesser extent from increases in
interest rates on the Company's variable-rate borrowings and higher average
outstanding debt balances.
Income from Continuing Operations
Income from continuing operations increased by $1.8 million, or 44.5%
from $4.1 million to $5.9 million from the first nine months of 1995 to the
first nine months of 1996, as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital,
including inventory requirements, expansion of existing facilities and
acquisitions of new facilities. These short-term cash needs have historically
been financed with retention of profits and borrowings under credit facilities
available to the Company.
In June 1996, the Company completed the initial public offering of
2,875,000 shares of common stock and received net proceeds of approximately
$32.1 million. As a result of the initial public offering, working capital
levels have generally increased. At September 30, 1996, the Company had
working capital of approximately $25.1 million, including $21.7 million in cash
and cash equivalents, $16.5 million in accounts receivable and $42.1 million in
inventories, less $13.6 million of accounts payable and accrued expenses, $2.4
million of current maturities on long- term debt and $40.0 million outstanding
under floor plan financing. The aggregate maximum borrowing limits under
working capital lines of credit with various commercial banks are approximately
$6.0 million. The Company's floor plan agreements with its primary lender
limit the aggregate amount of borrowings based on the number of new and used
trucks. As of September 30, 1996, the Company's floor plan arrangements permit
the financing of up to 692 new trucks and 283 used trucks.
11
12
For the first nine months of 1995, operating activities resulted in
net cash used in operations of approximately $7.7 million. The use of cash in
operations was primarily due to higher levels of accounts receivable and
inventories associated with greater sales activity.
For the first nine months of 1996, operating activities used $484,000
of cash. Net income of $4.6 million, an increase in accounts payable of $1.5
million and provisions for depreciation, amortization, and deferred taxes
totaling $2.4 million more than offset increases in inventories of $5.6 million
and a reduction in accrued liabilities of $3.1 million.
During the first nine months of 1995, the Company generated $941,000
of net cash in investing activities, as net capital expenditures of $2.2
million were more than offset by the proceeds from the sale of discontinued
operations of $3.6 million.
During the first nine months of 1996, the Company used $5.9 million
for investing activities, primarily acquisitions of real estate related to the
Oklahoma operations.
Net cash generated from financing activities in the first nine months
of 1995 amounted to $8.5 million. Proceeds from additional floor plan
financing and increased notes payable more than offset dividends paid to the S
corporation shareholder and principal payments on notes payable.
For the first nine months of 1996, net cash provided by financing
activities amounted to $25.9 million. Net proceeds from the Offering of $31.4
million, after direct expenses of the Offering of $781,000, draws on floor plan
financing, and proceeds from other notes were partially offset by an increase
of $10.2 million in dividends paid to the S corporation shareholder and
principal payments on notes payable.
During 1995, the Company arranged financing for approximately 25% of
its total new and used truck sales, with approximately 65% related to new truck
sales and the remaining 35% of financing related to used truck sales. The
Company's new and used truck financing is typically provided through Associates
and PACCAR Financial. The Company financed approximately $53.2 million of new
and used truck purchases in 1995. The Company's contracts with Associates and
PACCAR Financial provide for payment to the Company of all finance charges in
excess of a negotiated discount rate within 30 days of the date of financing,
with such payments subject to offsets resulting from the early pay-off, or
defaults under, of installment contracts previously sold to Associates and
PACCAR Financial by the Company. The Company's agreements with Associates and
PACCAR Financial limit the aggregate liability of the Company for defaults
under the installment contracts sold to Associates and PACCAR Financial to
$400,000 and $200,000 per year, respectively.
Substantially all of the Company's truck purchases from PACCAR are
made on terms requiring payment within 15 days or less form the date of
shipment of the trucks from the factory. The Company finances all, or
substantially all, of the purchase price of its new truck inventory, and 75% of
the loan value of its used truck inventory, under a floor plan arrangement with
GMAC under which GMAC pays PACCAR directly with respect to new trucks. The
company makes monthly interest payments on the amount financed but is not
required to commence loan principal repayments prior to sale of new vehicles to
GMAC for a period of 12 months and for used vehicles for a period of three
months. At September 30, 1996, the Company had $39.7 million outstanding under
its floor plan financing arrangement with GMAC. GMAC permits the Company to
earn, for up to one-half of the amount borrowed under its floor plan financing
arrangement with GMAC, interest at the prime rate on overnight funds deposited
by the Company with GMAC. Following the Offering GMAC increased the amount of
funds that the Company can earn interest at the prime rate to include one-half
of the outstanding floor plan financing, real estate financing and the line of
credit extended by GMAC.
Backlogs
The Company enters firm orders into its backlog at the time the order
is received. Customer orders are typically filled in 75 to 90 days and
customers normally place orders on that basis. However, certain customers,
including fleets and governments, typically place orders six months to one year
in advance of their desired delivery date. The Company in the past has
typically allowed customers to cancel orders at any time prior to delivery, and
the Company's level of cancellations is affected by general economic
conditions, 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, 1995 and September
30, 1996, were approximately $42.0 million and $49.0 million, respectively.
Backlogs increased principally due to the acquisition of the Oklahoma
operations.
12
13
Seasonality
The Company's business is moderately seasonal. Seasonal effects on
new truck sales related to the seasonal purchasing patterns of any single
customer type are mitigated by the Company's diverse customer base, including
small and large fleets, 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 50% of such rebates are typically received in the
fourth quarter, resulting in a seasonal increase in gross profit.
Cyclicality
The Company's business, as well as the entire retail heavy-duty truck
industry, is dependent on a number of factors relating to general economic
conditions, including fuel prices, interest rate fluctuations, economic
recessions and customer business cycles. In addition, unit sales of new trucks
have historically been subject to substantial cyclical variation based on such
general economic conditions. Although the Company believes that its geographic
expansion and diversification into truck-related services, including financial
services, leasing, rentals and service and parts, will reduce the overall
impact to the Company resulting from general economic conditions affecting
heavy-duty truck sales, the Company's operations may be materially and
adversely affected by any continuation or renewal of general downward economic
pressures or adverse cyclical trends.
Effects of Inflation
The Company believes that the relatively moderate inflation over the
last few years has not had a significant impact on the Company's revenue or
profitability. The company does not expect inflation to have any near-term
material effect on the sales of its products, although there can be no
assurance that such an effect will not occur in the future.
13
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number
-------
11.1 Computation of pro forma earnings per share
27.1 Financial data schedule
b) Reports on Form 8-K
None
14
15
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 14, 1996 By: /s/ W. MARVIN RUSH
----------------------------------------
Name: W. Marvin Rush
Title: Chairman and Chief Executive
Officer
(Principal Executive Officer)
Date: November 14, 1996 By: /s/ D. JEFFERY MICHELL
----------------------------------------
Name: D. Jeffery Michell
Title: Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
15
16
EXHIBITS
Exhibit
Number
-------
11.1 Computation of pro forma earnings per share
27.1 Financial data schedule
1
EXHIBIT 11.1
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME AND PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- ------------- ------------- -------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
PRIMARY EARNINGS PER SHARE CALCULATION
Income from continuing operations $ 1,537 $ 1,506 $ 4,595 $ 4,086
Income from discontinued operations -0- 1 -0- 1,561
------------- ------------- ------------- -------------
Net income $ 1,537 $ 1,506 $ 4,595 $ 5,647
============= ============= ============= =============
Weighted average number of common shares outstanding 6,640 3,750 4,909 3,750
Weighted average number of common share equivalents
applicable to stock options -0- -0- -0- -0-
------------- ------------- ------------- -------------
Common shares and common share equivalents 6,640 3,750 4,909 3,750
============= ============= ============= =============
Earnings per share - Primary
From continuing operations $ .23 $ .40 $ .94 $ 1.09
From discontinued operations -0- -0- -0- .41
------------- ------------- ------------- -------------
Net income $ .23 $ .40 $ .94 $ 1.50
============= ============= ============= =============
FULLY-DILUTED EARNINGS PER SHARE CALCULATION
Income from continuing operations $ 1,537 $ 1,506 $ 4,595 $ 4,086
Income from discontinued operations -0- -0- -0- 1,561
------------- ------------- ------------- -------------
Net income $ 1,537 $ 1,506 $ 4,595 $ 5,647
============= ============= ============= =============
Weighted average number of common shares outstanding 6,640 3,750 4,909 3,750
Weighted average number of common share equivalents
applicable to stock options -0- -0- -0- -0-
------------- ------------- ------------- -------------
Common shares and common share equivalents 6,640 3,750 4,909 3,750
============= ============= ============= =============
Earnings per share - Fully diluted (1)
From continuing operations $ .23 $ .40 $ .94 $ .69
From discontinued operations -0- -0- -0- .41
------------- ------------- ------------- -------------
Net income $ .23 $ .40 $ .94 $ 1.10
============= ============= ============= =============
(1) This calculation is submitted in accordance with item 601(b)11 of
regulation S-K although it is not required by APB Opinion No. 15
because it results in dilution of less than 3%.
PRO FORMA EARNINGS PER SHARE
Pro forma income from continuing operations after provision
for income taxes $ 934 $ 3,661 $ 2,533
Weighted average shares of common stock outstanding 3,750 4,909 3,750
Pro forma shares issued at offering price to pay undistributed
S corporation earnings 547 328 547
------------- ------------- -------------
Pro forma weighted average shares outstanding 4,297 5,237 4,297
------------- ------------- -------------
Pro forma income from continuing operations per share $ .22 $ .70 $ .59
============= ============= =============
5
1,000
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
21,671
0
16,549
0
42,093
80,750
21,608
0
105,627
55,694
14,269
0
0
66
35,015
105,627
0
250,930
0
209,870
32,072
0
3,083
5,905
1,310
4,595
0
0
0
4,595
.94
.94
