UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission file number 0-20797

RUSH ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:  (830) 626-5200

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 or the Act).   Yes  ý  No o

The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2004 was $194,503,827 based upon the last sales price on June 30, 2004 on The NASDAQ National Market^® of $13.00 for the Company’s Class A Common Stock and $12.96 for the Company’s Class B Common Stock.

The registrant had 16,369,285 shares of Class A Common Stock and 7,564,972 shares of Class B Common Stock outstanding on March 14, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of registrant’s definitive proxy statement for the registrant’s 2005 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than April 30, 2005, are incorporated by reference into Part III of this Form 10-K.

RUSH ENTERPRISES, INC.

Index to Form 10-K

Year ended December 31, 2004

NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements contained in this Form 10-K, including, but not limited to, statements made in Item 1, “Business,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. Specifically, all statements other than statements of historical fact included in this Form 10-K 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 reflect the best judgments of the Company about the future events and trends 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 “may,” “should,” “continue,” “plan,” “potential,” “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, future growth rates and margins for certain of our products and services, future demand for our products and services, competitive factors, general economic conditions, cyclicality, economic conditions in the new and used truck and equipment markets, 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-3 (File No.
333-119131) 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 in any forward-looking statements herein. 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.

NOTE REGARDING INCORPORATION BY REFERENCE

The Securities and Exchange Commission (“SEC”) allows us to disclose important information to you by referring you to other documents we have filed with the SEC. The information we refer to is “incorporated by reference” into this Form 10-K. Please read that information.

PART I

Item 1.  Business

References herein to “the Company,” “Rush Enterprises,” “Rush,” “we,” “our” or “us” mean Rush Enterprises, Inc., a Texas corporation, its subsidiaries and Associated Acceptance, Inc., the insurance agency affiliated with the Company, unless the context requires otherwise.

Access to Company Information

Rush electronically files annual reports, quarterly reports, and special reports with the SEC. You may read and copy any of the materials that we have filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also available to you on the SEC’s website at www.sec.gov.

Rush makes certain of its SEC filings available, free of charge, through its website, including its annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and all amendments to these reports. These filings are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Rush’s website address is www.rushenterprises.com. The information contained on our website, or on other websites linked to our website, is not part of this document.

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General

We are a full-service, integrated retailer of premium transportation and construction equipment and related services. The Company operates a Heavy-Duty Truck segment and a Construction Equipment segment (See Note 19 of Notes to Consolidated Financial Statements). Our Rush Truck Centers primarily sell heavy-duty trucks manufactured by Peterbilt Motors Company (“Peterbilt”), a division of PACCAR, Inc. (“PACCAR”). We sold approximately 22.3% of all the new Peterbilt Class 8 trucks registered in the United States in 2004. Some of our Rush Truck Centers sell medium-duty trucks manufactured by Peterbilt, GMC, Hino, UD (Nissan) or Isuzu. We are also a supplier of John Deere construction equipment through our Rush Equipment Center in Houston, Texas. Through our strategically located network of Rush Truck Centers and our Rush Equipment Center, we provide one-stop service for the needs of our customers, including retail sales of new and used transportation and construction equipment, aftermarket parts sales, service and repair facilities and financing, leasing and rental, and insurance services.

Our Rush Truck Centers are principally located in high traffic areas throughout the southern United States. Effective January 1, 2005, the Company acquired certain assets of American Truck Source, Inc. (“ATS”), including its Peterbilt truck dealerships in Dallas, Fort Worth, Abilene and Tyler, Texas and Nashville, Tennessee. Since commencing operations as a Peterbilt heavy-duty truck dealer over 39 years ago, we have grown to operate Rush Truck Centers at 44 locations in Alabama, Arizona, California, Colorado, Florida, New Mexico, Oklahoma, Tennessee and Texas.

Our Rush Equipment Center in Houston, Texas sells, leases and rents a full line of John Deere construction equipment for light to medium sized applications, as well as a variety of construction equipment trailers.

Additionally, we sell a complete line of property and casualty insurance, including collision and liability insurance on trucks, cargo insurance, and credit life insurance through our affiliate, Associated Acceptance, Inc.

We were founded and incorporated in 1965 in Texas. We currently conduct business through numerous subsidiaries, all of which are wholly owned, directly or indirectly, by us. Our principal offices are located at 555 IH 35 South, New Braunfels, Texas 78130.

Industry

We currently operate in the heavy-duty truck, medium-duty truck and construction equipment markets. There has historically been a high correlation in both of these markets between new product sales and the rate of change in U.S. industrial production and the U.S. gross domestic product.

Heavy-Duty Truck Market

The Company serves the entire U.S. retail heavy-duty truck market, which is affected by a number of factors relating to general economic conditions, including fuel prices, government regulation, 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. According to data published by R.L. Polk, an industry research and publication firm, the overall domestic heavy-duty truck market decreased from approximately 253,000 new Class 8 unit sales in 1999 to approximately 145,000 new Class 8 unit sales in 2003. During 2004, R.L. Polk estimates sales of domestic heavy-duty Class 8 trucks increased to approximately 200,000 and sales of domestic heavy-duty Class 8 trucks are expected to increase to approximately 250,000 units during 2005 according to A.C.T. Research Co., LLC (“A.C.T. Research”), a heavy-duty truck industry data and forecasting services provider. Our primary product line is Peterbilt trucks, which, according to R.L. Polk, accounted for approximately 12.0% of all new heavy-duty truck registrations in 2004. Historically, Peterbilt’s market share in areas served by our dealerships has been significantly higher than its national average.  Our share of the U.S. Class 8 truck sales market was approximately 2.7% in 2004.

Typically, Class 8 trucks are assembled by manufacturers utilizing certain components manufactured by other companies, including engines, transmissions, axles, wheels and other components. As trucks and truck components have become increasingly complex, the ability to provide state-of-the-art service for a wide variety of truck equipment has become a competitive factor in the industry. The ability to provide such service requires a significant capital investment in diagnostic and other equipment, parts inventory and highly trained service personnel. Environmental Protection Agency (“EPA”) and U.S. Department of Transportation (“DOT”) regulatory guidelines for service processes, including body shop, paint work and waste disposal, require sophisticated operating and testing equipment to ensure compliance with

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environmental and safety standards. Additionally, we believe that more of our customers will lease or rent Class 8 trucks as fleets, particularly private fleets, and seek to establish full-service leases or rental contracts, which provide for turnkey service including parts, maintenance and, potentially, fuel, fuel tax reporting and other services. As a result, differentiation between truck dealers has become less dependent on pure price competition and is increasingly based on a dealer’s ability to offer a wide variety of services to their clients. Such services include: efficient, conveniently located and easily accessible truck service centers with an adequate supply of replacement parts; financing for truck purchases; leasing and rental programs; and the ability to accept multiple unit trade-ins related to large fleet purchases. We believe our one-stop center concept and the size and geographic diversity of our dealer network gives us a competitive advantage in providing these services.

The EPA mandated that heavy-duty engine manufacturers meet new, stricter emissions guidelines regarding nitrous oxides for all engines built subsequent to October 1, 2002. These new guidelines increased the price of new heavy-duty trucks by approximately $3,000 to $8,000 per unit and were expected to reduce the operating efficiency and life cycle of heavy-duty trucks. As a result, the Company experienced stronger than usual truck sales during the second half of 2002 as customers made purchases of trucks manufactured under the “old” emission laws. This accelerated demand in the second half of 2002 was followed by a short-term decrease in demand during the first half of 2003, which was followed by an increase in demand that has continued since the second half of 2003.

The EPA has placed additional guidelines, further restricting the emissions of nitrous oxides, for all engines built subsequent to January 1, 2007. As it did in 2002, the industry has historically experienced an accelerated demand for trucks in the months preceding the effective date of the change in EPA guidelines, followed by a short-term decrease in demand in the months subsequent to the change. The Company does not expect the 2007 change in emission guidelines to have an effect on its 2005 results from operations. The Company believes it is too early to determine how the future changes in emission guidelines will affect its results from operations subsequent to 2005.

The heavy-duty truck industry as a whole is expected to deliver approximately 250,000 new trucks in the United States during 2005, compared to approximately 200,000 new trucks in 2004, 145,000 new trucks in 2003 and 150,000 new trucks in 2002. The 2002 and 2003 new heavy-duty truck sales totals were the lowest heavy-duty truck sales totals in the last nine years.

Management believes the long-term growth prospects for the heavy-duty truck industry remain positive. Factors, which management believes favor the continued long-term growth in the heavy-duty truck industry, include the following:

•                  continued growth in demand for consumer and industrial goods, in part as a result of the Internet, which has fostered a desire by consumers to receive home delivery of a wider selection of packages;

•                  continued competitive pressures for “just in time” manufacturing processes where U.S. manufacturers are demanding faster, yet less costly, small shipment services;

•                  the rise of intermodal service which utilizes the inherent advantages of both highway and rail transportation to provide consumers with a consistent and low cost method to transport their goods; and

•                  the continued increase of cross-border truck traffic between Mexico and the United States as a result of NAFTA.

Medium-Duty Truck Market

Several of our Rush Truck Centers sell medium-duty trucks manufactured by Peterbilt, GMC, Hino, UD (Nissan) or Isuzu, and provide parts and service for medium-duty trucks. Medium-duty trucks are principally used in short-haul, local markets as delivery vehicles. Medium-duty trucks typically operate locally and generally do not venture out of their service areas overnight. The nature of the medium-duty truck market promotes the use of our service facilities during our evening shift, which is traditionally a slow period for heavy-duty truck service.

A.C.T. Research estimates that retail sales of Class 5 through 7 medium-duty trucks totaled approximately 255,000 units in 2004. We plan to expand our share of this market by adding new product lines, medium-duty dealership locations and sales personnel. For example, we recently began selling Hino medium-duty trucks at our new Dallas, Texas full-service medium-duty dealership.

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Construction Equipment Market

Our Rush Equipment Center is an authorized John Deere construction equipment dealer, which sells equipment targeted towards light and medium construction applications. Our Rush Equipment Center serves Houston, Texas and the surrounding area. According to the data compiled by John Deere, approximately 2,200 units of construction equipment were put into use in our area of responsibility in 2004 compared to 1,678 in 2003. The construction equipment industry analysts expect approximately 2,350 units of new construction equipment to be sold in the Houston area during 2005. The Company’s market share in the Houston area was 16.7% in 2004 and 19.1% in 2003. Our Rush Equipment Center has the right to sell new John Deere construction equipment and parts within its assigned area of responsibility, which means competition within its market comes primarily from dealers of competing manufacturers and rental companies.

John Deere equipment users are a diverse group that includes residential and commercial construction businesses, independent rental companies, utility companies, government agencies, and various petrochemical, industrial and material supply businesses. Industry statistics suggest that a majority of all construction equipment is owned by a relatively small percentage of the customer base. Accordingly, John Deere and its dealer group, including the Rush Equipment Center, are aggressively developing more sophisticated ways to serve large fleet owners.

Market factors affecting the construction equipment industry include the following:

•                  levels of commercial, residential, and public construction activities;

•                  state and federal highway and road construction appropriations; and

•                  the consolidation and growth of the construction equipment rental business.

Our Business Strategy

Operating Strategy.  Our strategy is to operate an integrated dealer network that primarily markets Peterbilt heavy-duty trucks, medium-duty trucks from various manufacturers and John Deere construction equipment and provides complementary products and services. Our strategy includes the following key elements:

•                  One-Stop Centers. We have developed our truck and construction equipment dealerships as “one-stop centers” where, at one convenient location, our customers can do the following: purchase new or used trucks or construction equipment; finance, lease or rent trucks or construction equipment; purchase aftermarket parts and accessories; and have service performed by certified technicians. We believe that this full-service strategy also helps to mitigate cyclical economic fluctuations because the parts and service sales at our dealerships generally tend to be less volatile than our new and used truck and construction equipment sales.

•                  Branding Program. We employ a branding program for our dealerships through distinctive signage and uniform marketing programs to take advantage of our existing name recognition and to communicate the standardized high quality of our products and reliability of our services throughout our dealership network.

•                  Management by Dealership Units. Our dealership general managers measure and manage the business operations of each of our dealerships according to the specific business units operating at that location. At each of our dealerships, we operate one or more of the following business units: new sales, used sales, parts, service, body shop, leasing, rental or financial services. We believe that this system enhances the profitability of all aspects of a dealership and increases our overall operating margins. Operating goals for each business unit at each of our dealerships are established annually and managers are rewarded for performance accordingly.

•                  Integrated Management Information Systems. In order to efficiently operate separate business units within each dealership, we rely upon our management information systems to determine and monitor appropriate inventory levels and product mix at each Rush Truck Center. Each Rush Truck Center maintains a centralized real-time inventory tracking system that is accessible simultaneously by all locations. Our automated reordering system assists each Rush Truck Center in maintaining the proper inventory levels and typically permits inventory delivery to each location, or directly to customers, within 24 hours from the time the order is placed. In addition, by actively monitoring market conditions, assessing product and expansion strategies

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and remaining abreast of changes within the market, we are able to proactively address market-by-market changes by realigning and, if necessary, adding product lines and models.

Growth Strategy.  Through our expansion and acquisition initiatives, we have grown to operate a large, multistate, full-service network of heavy-duty truck dealerships. As described below, we intend to continue to grow our business internally and through acquisitions by expanding into new geographic areas, expanding our product offerings and capabilities and opening new one-stop truck and equipment centers in existing markets.

•                  Expansion Into New Geographic Areas. We plan to continue to expand our Rush Truck Center network and build a Rush Equipment Center network by acquiring additional dealerships in geographic areas contiguous to our current operations. We have successfully expanded our presence from our Texas base into a coast-to-coast network of Rush Truck Centers. We believe the geographic diversity of our Rush Truck Center network has significantly expanded our customer base while ameliorating the effects of local economic cycles. Geographic diversification supports the sale of trucks and parts by allowing us to allocate our inventory among the geographic regions we serve based on market demand within these regions.

•                  Expansion of Product Offerings and Capabilities. We intend to continue to expand our product lines within our Rush Truck Centers and our Rush Equipment Center by adding product categories that are both complementary to our Peterbilt and John Deere product lines and well suited to our operating model. For example, we expanded into the construction equipment industry based on a common customer base among our heavy-duty truck and construction equipment purchasers. We have also introduced trailer repair and maintenance services and the sale of truck-mounted cranes at certain Rush Truck Centers. Other recent product line expansions include the introduction of Hino and UD (Nissan) medium-duty truck franchises at some of our Rush Truck Centers.

We believe that there are many additional product and service offerings that would complement our primary product lines. We expect any product category expansion that we pursue to satisfy our requirements that:

•                  the products are of a premium brand;

•                  the products provide opportunities for incremental income through related servicing, aftermarket sales or financing; and

•                  Rush operating controls can be implemented to enhance the financial performance of the business.

•                  Open New Rush Truck and Equipment Centers in Existing Markets. We believe that there are opportunities to increase our share of the heavy-duty truck and construction equipment markets by introducing our one-stop centers to underserved markets within the southern United States. The introduction of additional one-stop centers would enable us to enhance revenues from our existing customer base as well as increase the awareness of the “Rush” brand name for new customers. We believe there would also be opportunities for cost savings by integrating the inventory management and operations of additional new locations with those in our existing network.

In identifying new areas for expansion, we analyze the target market’s level of new heavy-duty truck registrations and construction equipment purchases, customer buying and leasing trends and the existence of competing franchises. We also assess the potential performance of a parts and service center to determine whether a market is suitable for a Rush Truck Center. After a market has been strategically reviewed, we survey the region for a well-situated location. Whether we acquire existing dealerships or open a new Rush Truck Center, we will introduce our branding program and implement our integrated management system.

Management of Our Dealerships

We manage our dealerships as described below.

Rush Truck Centers

Our Rush Truck Centers are responsible for sales of new and used heavy-duty and medium-duty trucks, as well as related parts and services.

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New Truck Sales.   New heavy-duty truck sales represent the largest portion of our business, accounting for approximately $544.2 million, or 49.7%, of our total revenues for 2004. Rush Truck Centers primarily sell new Class 8 heavy-duty Peterbilt trucks, which constitute more than 85% of all our new truck revenue. The average delivery time for custom-ordered Peterbilt trucks can vary between 30 days to six months depending on vehicle specifications and demand. We also sell Class 8 heavy-duty trucks manufactured by Volvo Trucks of North America, Inc. (“Volvo”) at our Tulsa Rush Truck Center. Our Rush Truck Centers that sell new and used Class 8 heavy-duty trucks also sell Class 6 and Class 7 medium-duty Peterbilt trucks, Peterbilt refuse chassis and cement mixer chassis. Certain Rush Truck Centers also sell medium-duty trucks manufactured by GMC, Hino, Isuzu or UD (Nissan). Medium-duty truck sales accounted for approximately $93.5 million, or 8.5%, of our total revenues for 2004. Our customers use heavy-duty and medium-duty trucks to haul a variety of materials, including general freight, petroleum, wood products, refuse and construction materials.

A majority of our new truck sales are to fleet customers (customers who purchase more than five trucks in any 12-month period). Because of the size of our Rush Truck Center network, our strong relationships with our fleet customers and our ability to handle large quantities of used truck trade-ins, we are able to successfully market and sell to fleet customers nationwide. We believe that we have a competitive advantage over most other dealers in that we can absorb multiunit trade-ins often associated with fleet sales of new trucks and effectively disperse the used trucks for resale throughout our dealership network. We believe that our attention to customer service and our broad range of trucking services, including our ability to offer truck financing and insurance to our customers, has resulted in a high level of customer loyalty.

Used Truck Sales.  Used truck sales accounted for approximately $96.9 million, or approximately 8.9%, of our total revenues for 2004. We primarily sell used Class 8 heavy-duty trucks manufactured by the leading truck manufacturers in the industry, including: Peterbilt; Kenworth Truck Co. (“Kenworth”), a division of PACCAR; Volvo; Freightliner Corporation, a subsidiary of Daimler Chrysler AG (“Freightliner”); Mack Trucks, Inc. (“Mack”) and Navistar International Corporation (“Navistar”). We believe that we are well positioned to market used heavy-duty trucks due to our ability to recondition used trucks for resale utilizing the parts and service departments of our Rush Truck Centers and our ability to move used trucks between Rush Truck Centers to satisfy customer demand. The majority of our used truck fleet consists of trucks taken as trade-ins from new truck customers, but some of our used truck fleet is purchased from third parties for resale.

Truck Parts and Service.  Truck-related parts and service revenues accounted for approximately $272.5 million, or approximately 24.9%, of our total revenues for 2004. We are the sole authorized Peterbilt parts and accessories supplier in each of the geographic territories served by our Rush Truck Centers. The parts business augments our sales and service functions and is a source of recurring revenue. Each Rush Truck Center carries a wide variety of Peterbilt and other truck parts in its inventory, with more than 5,000 items from over 50 suppliers at most locations. Rush Truck Centers offer “menu” pricing of service and body shop functions and expedited service at a premium price for certain routine repair and maintenance functions. We also have field service trucks and technicians who are capable of making on-site repairs at our customers’ locations.

Our Rush Truck Centers also feature various combinations of fully equipped service and body shop facilities, the combination and configuration of which varies by location, capable of handling a broad range of truck repairs on most makes and classes of trucks. Each Rush Truck Center is a Peterbilt designated warranty service center and most are also authorized service centers for other manufacturers, including the following: Caterpillar, Inc. (“Caterpillar”); Cummins Engine, Inc. (“Cummins”); Eaton Corporation; and Rockwell International Corporation. We have more than 700 service and body shop bays, including 20 paint booths, throughout our Rush Truck Center network.

We perform both warranty and nonwarranty service work. The cost of warranty work is reimbursed by the manufacturer at retail consumer rates. A majority of the service technicians at our Rush Truck Centers have been certified by various truck or component manufacturers.

Truck Leasing and Rental.   Truck leasing and rental revenues accounted for approximately $27.0 million, or 2.5%, of our total revenues for 2004. We engage in full-service Peterbilt truck leasing under the “PacLease” trade name at 14 of our Rush Truck Centers and are the largest PacLease dealer in the United States. Leasing and rental customers contribute to additional parts sales and service work at Rush Truck Centers because all of our leases require all service and maintenance for the leased trucks to be performed at our facilities (or at facilities outside our service area, as we direct). Rented trucks are also generally serviced at our facilities. We have increased our lease and rental fleet from less than 100 trucks in 1993 to 1,427 trucks as of December 31, 2004. As of December 31, 2004, we owned approximately 59% of our lease and rental fleet, and leased the remaining trucks in our fleet directly from PACCAR Financial Corporation

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(“PACCAR Financial”). Currently, the average age of the trucks in our lease and rental fleet is approximately 41 months. Generally, we hold trucks in our lease and rental fleet for approximately five years and then sell them to the public through the used sales operations at our Rush Truck Centers. Historically, we have realized gains on the sale of former lease trucks in excess of the cost of the purchase option contained in our leases with PACCAR Financial or the book value of trucks owned by the Company.

Rush Equipment Center

Our Rush Equipment Center in Houston, Texas is responsible for sales of new and used construction equipment and related parts and service.

New Construction Equipment Sales.   New construction equipment sales accounted for approximately $28.9 million, or 2.6%, of our total revenues for 2004. Our Rush Equipment Center carries a complete line of John Deere construction equipment. A new piece of John Deere construction equipment typically ranges in price from $50,000 for a backhoe to $500,000 for an excavator. We carry a full line of complementary construction equipment manufactured by other suppliers to augment our John Deere product line. We sell construction equipment to a diverse customer base including residential and commercial construction businesses, utility companies, government agencies, and various petrochemical, industrial and material supply businesses.

We believe that John Deere’s reputation for manufacturing high quality construction equipment attracts new and repeat customers who value lower maintenance and repair costs and a higher residual value at trade-in. We attempt to increase this brand loyalty with an operating strategy that is similar to the operating strategy used by our Rush Truck Centers and focuses on providing fast, reliable service. We believe that our operating strategy will enable us to both increase our customer base and generate repeat business for all product offerings.

Used Construction Equipment Sales.   Used construction equipment sales accounted for approximately $3.4 million, or 0.3%, of our total revenues for 2004. We sell used construction equipment manufactured by several of the leading manufacturers, including John Deere, Case Corporation (“Case”), Caterpillar, and Komatsu, Ltd. (“Komatsu”). Our used construction equipment inventory is derived from trade-ins from our construction equipment customers and purchases from third parties.

Construction Equipment Parts and Service.   Construction equipment-related parts and service revenues accounted for approximately $12.7 million, or 1.2%, of our total revenues for 2004. Our Rush Equipment Center carries a wide variety of John Deere and other parts in its inventory, which consists of over 10,000 items from more than 15 suppliers. We are the sole authorized John Deere construction equipment parts and accessories supplier in the Houston, Texas area. We maintain a fully equipped service operation capable of handling repairs on John Deere construction equipment and most other brands of construction equipment at our Rush Equipment Center. We enhance our service presence with field service trucks and technicians who are capable of making on-site repairs at our customers’ locations.

Construction Equipment Rental.   Construction equipment rental revenues accounted for approximately $0.2 million, or 0.01%, of our total revenues for 2004. Currently, we only offer our customers short-term rentals in order to allow them to effectively manage their business operations and assets by obtaining construction equipment on an as-needed basis. Consequently, we do not have a dedicated rental fleet.

Financial and Insurance Services

We sell a complete line of property and casualty insurance to our customers as well as to the general trucking public. Our agency is licensed to sell truck liability, general liability, collision and comprehensive, workers’ compensation, cargo, credit life and health and occupational accident insurance coverage throughout our operating territory. We serve as sales representatives for a number of leading insurance companies including the Great American Insurance Companies, Hartford Insurance Group and American General Financial Group. Our renewal rate during 2004 was 68%.

At our Rush Truck Centers and our Rush Equipment Center we have personnel responsible for arranging third-party financing and insurance for both our heavy-duty truck and construction equipment product offerings. The sale of financial and insurance products accounted for approximately $7.9 million, or 0.7%, of our total revenue for 2004. Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of our operating profits.

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New and Used Truck Financing.   Primarily through Citicapital and PACCAR Financial, we arranged customer financing of approximately $239.7 million in 2004, an increase of 62.6% from approximately $147.4 million in 2003. Generally, truck finance contracts are memorialized through the use of installment contracts, which are secured by the trucks financed, and generally require a down payment of 10% to 30% of the value of the financed truck, with the remaining balance financed over a two to five-year period. The majority of finance contracts are sold without recourse to the Company. The Company’s recourse liability related to finance contracts sold with recourse to the Company ranges from 5% to 100% of the outstanding amount of each note initiated on behalf of the finance company (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies”). The Company provides for an allowance for repossession losses and early repayment penalties.

New and Used Construction Equipment Financing.  Through The CIT Group, Citicapital, John Deere Credit and others, we arranged customer financing for approximately $20.2 million in 2004, an increase of 14.1% from approximately $17.7 million in 2003. Generally, construction equipment finance contracts are memorialized through the use of installment or lease contracts, which are secured by the construction equipment financed, and generally require a down payment of 0% to 10% of the value of the financed piece of construction equipment, with the remaining balance being financed over a three to five-year period. All finance contracts for construction equipment are assigned without recourse.

Sales and Marketing

Our established expansion and acquisition strategy and long history of operations in the heavy-duty truck business have resulted in a strong customer base that is diverse in terms of geography, industry and scale of operations. Rush Truck Centers’ customers include owner operators, regional and national truck fleets, corporations and local governments. During 2004, no single customer of our Rush Truck Centers accounted for more than 10% of our total truck sales by dollar volume. Our Rush Equipment Centers’ customer base is similarly diverse and, during 2004, no single Rush Equipment Center customer accounted for more than 10% of our total construction equipment sales by dollar volume. We generally promote our products and related services through direct customer contact by our sales personnel, advertisements in trade magazines and attendance at industry shows.

We believe that the consistently reliable service received by our customers, our longevity and our geographic diversity have resulted in increased market recognition of the “Rush” brand name and have served to reinforce customer loyalty. During 2004, the majority of our truck sales were to repeat customers. In an effort to enhance our name recognition and to communicate the standardized high level of quality products and services provided at our Rush Truck Centers and our Rush Equipment Center, we implement our “Rush” brand name concept at each of our dealerships. Each of our dealerships is identified as either a Rush Truck Center or Rush Equipment Center. In the Houston, Texas area, we are making a concerted effort to target our products and services to existing truck customers that are also involved in the construction business.

Facility Management

Personnel.  Each Rush Truck Center and the Rush Equipment Center is managed by a general manager who oversees the operations, personnel and the financial performance of the location, subject to the direction of our corporate office. Additionally, each Rush Truck Center is typically staffed by a sales manager, parts manager, service manager, sales representatives, parts employees, and other service and makeready employees. The sales staff of each Rush Truck Center and the Rush Equipment Center is compensated on a salary plus commission basis, with a high percentage of their compensation consisting of commission, while the general manager, parts manager and service manager receive a combination of salary and performance bonus, with a high percentage of their compensation consisting of the performance bonus. We believe that our employees are among the highest paid in their respective industries.

General managers annually prepare detailed monthly forecasts and monthly profit and loss statements based upon historical information and projected trends. A portion of each general manager’s performance bonus is based upon whether they meet or exceed their operating plans. During the year, general managers regularly review their facility’s progress with senior management and make appropriate adjustments as needed. Most of our employees receive annual performance evaluations.

We have been successful in retaining our senior management, general managers and other employees. To promote communication and efficiency in operating standards, general managers and members of senior management attend several company-wide strategy sessions per year. In addition, management personnel attend various industry-sponsored leadership

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and management seminars and receive continuing education on Peterbilt products or John Deere products, marketing strategies and management information systems.

Members of senior management regularly travel to each location to provide on-site management and support. Each location is audited regularly for administrative record-keeping, human resources and environmental compliance matters. The Company has instituted succession planning pursuant to which employees in each Rush Truck Center and the Rush Equipment Center are groomed as assistant managers to assume management responsibilities in existing and future dealerships.

Purchasing and Suppliers.  We believe that pricing is an important element of our marketing strategy. Because of our size, our Rush Truck Centers benefit from volume purchases at favorable prices that permit them to achieve a competitive pricing position in the industry. We purchase our Peterbilt heavy-duty truck inventory and Peterbilt parts and accessories directly from PACCAR. All other manufacturers’ parts and accessories, including those of Cummins, Caterpillar and others, are purchased through wholesale vendors or from PACCAR, who buys such products in bulk for resale to us and other Peterbilt dealers. All purchasing, volume and pricing levels and commitments are negotiated by personnel at our corporate headquarters. We have been able to negotiate favorable pricing levels and terms, which enables us to offer competitive prices for our products. We purchase all of our John Deere construction equipment inventory and John Deere parts directly from John Deere.

Management Information Systems.  Each Rush Truck Center and the Rush Equipment Center maintains a centralized real-time inventory tracking system which is accessible simultaneously by all locations and by our corporate office. We utilize our management information systems to monitor the inventory level at each of our dealerships. From information assimilated from management information systems, management has developed a model reflecting historic sales levels of different product lines. This model enables management to identify the appropriate level and combination of inventory and forms the basis of our operating plan. Our management information systems and databases are also used to monitor market conditions and sales information and assess product and expansion strategies.

Information received from state and regulatory agencies, manufacturers, industry analysts and industry contacts allows us to determine market share statistics and gross volume sales numbers for our products as well as those of competitors. This information impacts ongoing operations because management remains aware of changes within the markets we service and is able to react accordingly by realigning product lines and by adding new product lines and models.

Distribution and Inventory Management.  We utilize a real-time inventory management tracking system to maintain a close link between each Rush Truck Center. This link allows for timely and cost-effective sharing of managerial and sales information as well as the prompt transfer of inventory among various locations. The transfer of inventory reduces delays in delivery, helps maximize inventory turns and assists in controlling problems created by overstock and understock situations. We are linked directly to our major suppliers, including PACCAR, GMC, and John Deere, via real-time communication links for purposes of ordering and inventory management. These automated reordering and communication systems allow us to maintain proper inventory levels and permit us to have inventory delivered to our locations, or directly to customers, typically within 24 hours of an order being placed.

Recent Acquisitions and Dispositions

Effective January 1, 2005, we acquired certain assets of ATS, including its Peterbilt truck dealerships in Dallas, Fort Worth, Abilene and Tyler, Texas and Nashville, Tennessee, for a total purchase price of $131.2 million. The acquisition provides us with the right to sell Peterbilt trucks and parts in these locations. The acquisition expands our presence in the southern United States and results in the Company operating Rush Truck Centers at 44 locations in nine states.

In November 2002, we decided to discontinue our retail segment, which operated three D&D Farm and Ranch Supermarket (“D&D”) retail stores in Denton, Hockley and Seguin, Texas because it did not fit into our long-term plans of growing our core truck and construction equipment businesses. The Denton store was closed in December 2002; the Hockley store began liquidating inventory during November 2002 and completed the liquidation in March 2003. The Company sold the Seguin store and the Hockley real estate in the fourth quarter of 2004.

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In November 2003, we sold certain assets of our wholly owned subsidiary, Rush Truck Centers of Louisiana, Inc. The transaction was valued at approximately $5.5 million and paid in cash. We recognized a gain on sale of assets of approximately $1.6 million in the fourth quarter of 2003.

In April 2003, we purchased substantially all of the assets of Peterbilt of Mobile, Inc., which consisted of a Peterbilt dealership in Mobile, Alabama. Peterbilt of Mobile, Inc.’s primary line of business is the sale of new Peterbilt Class 8 trucks, used heavy-duty trucks, parts and service. The transaction was valued at approximately $1.4 million, with the purchase price paid in cash.

In February 2003, we acquired the common stock of Orange County Truck and Trailers, Inc., a Peterbilt dealer in central Florida. The acquisition provided Rush with the right to sell Peterbilt trucks and parts in central Florida from locations in Orlando, Haines City, and Tampa, Florida. The transaction was valued at approximately $5.4 million, with the purchase price paid in cash.

In November 2002, we decided to sell our Michigan John Deere construction equipment stores as a result of continuing deterioration in the Michigan construction equipment market and the location of the stores in relation to our other operations and plans for future expansion. The sale of the Michigan construction equipment stores was substantially complete at December 31, 2002.

Competition

There is, and will continue to be, significant competition both within our current markets and in the new markets we may enter. We anticipate that competition between us and other dealers will continue to increase in our current markets and on a national level based on the following:

•                  the accessibility of dealership locations;

•                  the number of dealership locations;

•                  price, value, quality and design of the products sold; and

•                  attention to customer service (including technical service).

Our new truck products compete with trucks made by other manufacturers and sold through competing independent and factory-owned truck dealerships, including trucks manufactured by Navistar, Mack, Freightliner, Kenworth, Volvo, Ford Motor Company, Western Star Truck Holdings, Ltd., and other manufacturers. Kenworth heavy-duty trucks are also manufactured by PACCAR, Peterbilt’s parent company, but are distributed through a different network of competing dealers. Our construction equipment products compete with construction equipment manufactured by Case, Caterpillar, Komatsu and other manufacturers. We believe that our dealerships are able to compete with manufacturer-dealers, independent dealers and wholesalers, rental service companies and industrial auctioneers in distributing our products on the basis of: overall product quality and reputation; “Rush” brand name recognition and reputation for reliability; and our ability to provide comprehensive full parts and service support, as well as financing, insurance and other customer services.

Dealership Agreements

                Peterbilt.  We have entered into nonexclusive dealership agreements with Peterbilt which authorize us to act as a dealer of Peterbilt heavy-duty trucks. Our areas of responsibility currently encompass in the states of Alabama, Arizona, California, Colorado, Florida, New Mexico, Oklahoma, Tennessee and Texas. These dealership agreements have current terms expiring between December 2005 and January 2008 and impose certain operational obligations and financial requirements upon us and our dealerships. These agreements are terminable by Peterbilt upon a change of control of the Company, as such term is described in each agreement, and grant Peterbilt rights of first refusal under certain circumstances relating to any sale or transfer of our dealership locations or if certain Rush family members desire to sell more than 100,000 shares of our voting common stock within a 12-month period to anyone other than family members or certain other specified persons. Any termination or nonrenewal of these dealership agreements by Peterbilt must follow certain guidelines established by both state and federal legislation designed to protect dealers such as us from arbitrary termination or nonrenewal of franchise agreements. The Automobile Dealers Day in Court Act and other similar state laws provide that the termination or nonrenewal of a dealership agreement must be done in “good faith” and upon a showing of “good cause”

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by the manufacturer for such termination or nonrenewal, as such terms have been defined by statute and interpreted in case law.

John Deere.  We have entered into a nonexclusive dealership agreement with John Deere which authorizes us to act as a dealer of John Deere construction, utility and forestry equipment. This John Deere dealership agreement has no specified term or duration. Our current area of responsibility for the sale of John Deere construction equipment is the greater Houston, Texas metropolitan area. The John Deere dealership agreement imposes operational obligations and financial requirements of the Company. Like the dealership agreements with Peterbilt, the dealership agreement with John Deere is terminable upon a change of control of the Company, grants limited rights of first refusal and imposes certain financial requirements upon us and our dealership.

Other Truck Suppliers.  In addition to our truck dealership agreements with Peterbilt, we are also an authorized dealer of Volvo trucks at our Rush Truck Center in Tulsa, Oklahoma, and have nonexclusive dealership agreements with GMC for the sale of GMC medium-duty trucks at our Rush Truck Centers in San Antonio, Houston, Austin and El Paso, Texas; Oklahoma City and Tulsa, Oklahoma; San Diego, California; and Phoenix and Tucson, Arizona. The Company has dealership agreements with UD (Nissan) for the sale of medium-duty trucks at our Rush Truck Centers in Fontana and Sylmar, California; Austin, Texas; and Winter Garden, Florida. We have a dealership service agreement with UD (Nissan) for the service of medium-duty trucks at our Pico Rivera, California Rush Truck Center. We have a dealership agreement with Isuzu for the sale of medium-duty trucks at our Rush Truck Center in Austin, Texas. In addition, we have a dealership agreement with Hino for the sale of Hino medium-duty trucks at our Rush Truck Centers in San Antonio, Pharr, Houston, Austin and Dallas, Texas; Oklahoma City and Tulsa, Oklahoma; Phoenix and Tucson, Arizona; and San Diego, California. Sales of non-Peterbilt medium-duty trucks accounted for less than 3.6% of our total revenues for 2004. These dealership agreements have current terms expiring between May 2005 and March 2007. These dealership agreements impose operating requirements upon us and require consent from the affected supplier for sale or transfer of such dealership agreement.

Other Construction Equipment Suppliers.  In addition to John Deere, we are an authorized dealer for suppliers of other construction equipment. The terms of such arrangements vary, but most of these dealership agreements contain termination provisions allowing the supplier to terminate the agreement after a specified notice period (usually 180 days).

Floor Plan Financing

Trucks.  We finance substantially all of our new truck inventory and 75% of the loan value of our used truck inventory under a floor plan arrangement with GMAC. As of December 31, 2004, we had approximately $159.8 million outstanding under our GMAC floor plan arrangement. Our GMAC floor plan facility has no expiration date and generally is renegotiated annually. The current interest rate is the prime rate less 65 basis points.

Construction Equipment.  We finance substantially all of our new construction equipment inventory under floor plan facilities with John Deere and Citicapital, a division of Citigroup. Our John Deere facility has no set expiration date and its interest rate is the prime rate plus 1.5%. Our Citicapital facility expires December 20, 2005 and the current interest rate is the 30-day LIBOR rate plus 3.0%. As of December 31, 2004, we had $1.6 million outstanding under the floor plan arrangement with John Deere and $6.6 million outstanding under the floor plan arrangement with Citicapital.

Product Warranties

Both Peterbilt and John Deere provide the retail purchasers of their products with a limited warranty against defects in materials and workmanship, excluding certain specified components which are separately warranted by the suppliers of such components. We do not undertake to provide any warranty to our customers.

We generally sell our used trucks and construction equipment “as is” and without manufacturer’s warranty, although manufacturers sometimes will provide a limited warranty on their used products if such products have been properly reconditioned prior to resale or if the manufacturer’s warranty on such product is transferable and has not yet expired. We do not undertake to provide any warranty to our used truck or used construction equipment customers.

Trademarks

The Peterbilt, John Deere, Volvo, GMC, Hino, Isuzu and UD (Nissan) trademarks and trade names, which are used in connection with our marketing and sales efforts, are subject to limited licenses included in the dealership

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agreements that we have with each of the respective manufacturers. The licenses are for the same periods as our dealership agreements. These trademarks and trade names are recognized internationally and are important in the marketing of our products. Each licensor engages in a continuous program of trademark and trade name protection in its marketing areas. We hold a registered trademark from the U.S. Patent and Trademark Office for the name “Rush.”

Employees

On December 31, 2004, we had 1,924 employees. We have no contracts or collective bargaining agreements with labor unions and have never experienced work stoppages. We consider our relations with our employees to be good.

Seasonality

The Company’s heavy-duty truck business is moderately seasonal. Seasonal effects on new truck sales related to the seasonal purchasing patterns of any single customer type are mitigated by the Company’s diverse customer base, including small and large fleets, governments, corporations and owner operators. However, truck parts and service operations historically have experienced higher volumes of sales in the second and third quarters.

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 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.

Backlog

On December 31, 2004, the Company’s backlog of truck orders was approximately $324.0 million as compared to a backlog of truck orders of approximately $150.0 million on December 31, 2003. The Company includes in its backlog only confirmed orders. It currently takes between 60 days and six months for the Company to receive delivery from Peterbilt once an order is placed depending on vehicle specifications and demand. The Company sells the majority of its new heavy-duty trucks by customer special order, with the remainder sold out of inventory. Orders from a number of the Company’s major fleet customers are included in the Company’s backlog as of December 31, 2004.

Environmental Standards and Other Governmental Regulations

Our operations are subject to numerous federal, state and local laws and regulations, including laws and regulations designed to protect the environment by regulating the discharge of materials into the environment. The EPA mandated that heavy-duty engine manufacturers meet new, stricter emissions guidelines regarding nitrous oxides for all engines built subsequent to October 1, 2002 and the EPA has placed additional guidelines, further restricting the emissions of nitrous oxides for all engines built subsequent to January 1, 2007. In 2002, the industry experienced an accelerated demand for trucks, as it historically has in the months preceding the effective date of a change in EPA engine emission guidelines; this was followed by a short-term decrease in demand in the months subsequent to the change. The Company does not expect the 2007 change in emission guidelines to have an affect on its 2005 results from operations. The Company believes it is too early to accurately determine how the future changes in emission guidelines will affect its results from operations subsequent to 2005.

Termination of Dealership Agreements Upon a Change of Control

A substantial percentage of our revenues is derived from sales of Peterbilt trucks and John Deere construction equipment products. Therefore, our business is highly dependent on our dealership agreements with Peterbilt and John Deere, which authorize us to sell Peterbilt and John Deere products in our market areas. Our dealership agreements with Peterbilt are terminable by Peterbilt in the event the aggregate voting power of Mr. W. Marvin Rush (“Mr. Rush”) and his family decreases below 30% with respect to the election of directors. The John Deere dealership agreement would similarly be terminable by John Deere if the aggregate voting power of Mr. Rush and his family were to decrease below 25%. As of December 31, 2004, Mr. Rush and his family owned 9,524 shares of the Company’s Class A Common Stock, $.01 par value per share (the “Class A Common Stock”), and 2,759,524 shares of the Company’s Class B Common Stock, $.01 par value per share (the “Class B Common Stock”), or approximately 33.0% of the Company’s outstanding voting power. The Company has no control over the transfer or disposition of the shares of the Company’s common stock by Mr. Rush or by Mr. Rush’s estate. If Mr. Rush were to sell his Class B Common Stock, bequest his Class B Common Stock to nonfamily

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members or if Mr. Rush’s estate were required to liquidate his Class B Common Stock to pay estate taxes or otherwise, the change of control provisions of the dealership agreements described above could be triggered and cause the Company to lose its critical right to sell Peterbilt and John Deere products. Any loss of rights under its dealership agreements would have a severely adverse effect on the Company’s results of operations.

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Item 2.  Properties

A Rush Truck Center or Rush Equipment Center may be comprised of one or more locations, generally in close proximity, in the same metropolitan area. The following is a list of our Rush Truck Center and Rush Equipment Center locations as of December 31, 2004:

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With the acquisition of ATS, effective January 1, 2005, we also operate Rush Truck Centers at the following locations:

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Our administrative offices are currently situated in approximately 35,000 square feet of leased space in New Braunfels, Texas. We lease warehouse space to store tires for our tire stores in Kyle and Crockett, Texas. In December 2004, we purchased a building in Smyrna, Tennessee and will move the Nashville dealership we acquired from ATS to this location. We also acquired undeveloped land in Fort Worth, Texas from ATS in January 2005. We are currently building a new facility on land that we purchased in Mobile, Alabama and plan to move our dealership to this location during 2005. The administrative offices of our insurance services division occupy 3,750 square feet of leased space in San Antonio, Texas. We also own and operate a hunting ranch of approximately 6,500 acres in Cotulla, Texas. The Company sells hunting trips on the ranch and uses the ranch for client development purposes.

Item 3.  Legal Proceedings

From time to time, we are involved in litigation arising out of our operations in the ordinary course of business. We maintain liability insurance, including product liability coverage, in amounts deemed adequate by management. To date, aggregate costs to us for claims, including product liability actions, have not been material. However, an uninsured or partially insured claim, or claim for which indemnification is not available, could have a material adverse effect on our financial condition. We believe that there are no claims or litigation pending, the outcome of which could have a material adverse effect on our 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 our results of operations for the fiscal period in which such resolution occurred.

Item 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the Company’s shareholders during the fourth quarter of the fiscal year ended December 31, 2004.

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PART II

Item 5.  Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities

Effective at the close of business on July 9, 2002 (the “Record Date”), pursuant to action taken by the shareholders at the Annual Meeting of the Company held July 9, 2002, and described in the Proxy Statement dated May 15, 2002, the Board of Directors of the Company reclassified the outstanding common stock, $0.01 par value per share (the “Old Common Stock”), as Class B Common Stock, $0.01 par value per share (the “Class B Common Stock”), and declared a stock dividend of one share of a new Class A Common Stock, $.01 par value per share (the “Class A Common Stock”), for each share of Class B Common Stock held by shareholders of record on the Record Date. Each share of Class A Common Stock ranks substantially equal to each share of Class B Common Stock with respect to receipt of any dividends or distributions declared on shares of common stock and the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness and liquidation preference payments to holders of preferred shares. However, holders of Class A Common Stock will have 1/20^th of one vote per share on all matters requiring a shareholder vote, while holders of Class B Common Stock have one vote per share on all matters requiring a shareholder vote.

The Company’s Old Common Stock was traded on The NASDAQ National Market^® (“NASDAQ”) under the symbol “RUSH” from June 7, 1996, the date of the Company’s initial public offering, until July 9, 2002, the date of the stock reclassification and dividend described above. Subsequent to July 9, 2002, the Company’s common stock trades on NASDAQ under the symbols “RUSHA” and “RUSHB.”

Pursuant to a Registration Statement on Form S-3, declared effective by the SEC on November 18, 2004, the Company closed a public offering of 11,500,000 shares of Class A Common Stock at the offering price of $13.25 per share on November 24, 2004. Included in the offering were 2,750,000 shares sold by selling shareholders and 8,750,000 shares sold by the Company. Of the 8,750,000 shares sold by the Company, 1,500,000 shares were purchased pursuant to the underwriters’ option to purchase additional shares to cover over-allotments of shares. The total value of the offering, excluding the value of the shares sold by the selling shareholders, was $115.9 million. A portion of the net proceeds from the offering were used to finance the Company’s acquisition of ATS.

The following table sets forth the high and low trade prices for the Class A Common Stock and Class B Common Stock for the fiscal periods indicated, and as reported by NASDAQ. The quotations represent prices in the over-the-counter market between dealers in securities, do not include retail markup, markdown or commissions and may not necessarily represent actual transactions.

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As of March 2, 2005, there were approximately 58 record holders of the Class A Common Stock and approximately 57 record holders of the Class B Common Stock and approximately 2,965 beneficial holders of the Class A Common Stock and approximately 1,304 beneficial holders of the Class B Common Stock.

The Board of Directors intends to retain any earnings of the Company to support operations and to finance expansion and does not intend to pay cash dividends in the foreseeable future. Any future determination as to the payment of dividends will be at the discretion of the Board of Directors of the Company and will depend on the Company’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.

The Company has not sold any securities in the last three years that were not registered under the Securities Act.

No shares of the Company’s Class A Common Stock or Class B Common Stock were purchased by or on behalf of the Company or any affiliated purchaser in the fourth quarter of 2004.

Information regarding the Company’s equity compensation plans is incorporated by reference from Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters,” of this annual report on Form 10-K, and should be considered an integral part of this Item 5.

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Item 6.  Selected Financial Data

The information below was derived from the audited consolidated financial statements included in this report and reports we have previously filed with the SEC. This information should be read together with those consolidated financial statements and the notes to those consolidated financial statements. These historical results are not necessarily indicative of the results to be expected in the future. The selected financial data presented below may not be comparable between periods in all material respects or indicative of the Company’s future financial position or results of operations due primarily to acquisitions and discontinued operations which occurred during the periods presented. See Note 17 to the Company’s Consolidated Financial Statements for a discussion of such acquisitions and Note 3 to the Company’s Consolidated Financial Statements for a discussion of such discontinued operations. The selected financial data presented below should be read in conjunction with the Company’s other financial information included elsewhere herein.

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Acquisition of American Truck Source, Inc.

Effective January 1, 2005, we acquired certain assets of ATS, including its Peterbilt truck dealerships in Texas and Tennessee for a total purchase price of $131.2 million. The acquisition provides us with rights to sell Peterbilt trucks and parts from new locations in Dallas, Fort Worth, Abilene and Tyler, Texas and Nashville, Tennessee. The transaction was financed with cash of $76.9 million, expansion of the our existing floor plan agreement for truck inventory of $34.6 million and the issuance of debt of approximately $19.7 million to finance the purchase of real estate and certain vehicles used in ATS’s leasing operations. Of the $76.9 million paid in cash, $21.9 million was for the purchase of a note receivable from the selling shareholders of ATS. This $21.9 million was immediately repaid by the selling shareholders at closing, resulting in net cash used in the acquisition of $55.0 million.

General

We are a full-service, integrated retailer of premium transportation and construction equipment and related services. We are the leading supplier of Peterbilt trucks in the United States; according to data compiled by R.L. Polk, we sold approximately 22.3% of all the new Class 8 Peterbilt trucks sold in the United States in 2004. Some of our Rush Truck Centers sell medium-duty trucks manufactured by Peterbilt, GMC, Hino, UD (Nissan) or Isuzu. In 1997, we acquired our first John Deere construction equipment dealership in Houston, Texas and we are the only authorized supplier of John Deere construction equipment in the Houston market. Through our strategically located network of Rush Truck Centers and our Rush Equipment Center, we provide one-stop service for the needs of our customers, including retail sales of new and used transportation and construction equipment, aftermarket parts sales, service and repair facilities and financing, leasing and rental, and insurance services.

Our Rush Truck Centers are principally located in high traffic areas throughout the southern United States. We provide leasing and rental services at some of our Rush Truck Centers and our Rush Equipment Center. Retail financing of trucks and construction equipment, as well as a line of insurance products, can also be arranged at some of our Rush Truck Centers and Rush Equipment Center.

Our business strategy consists of providing our customers with competitively priced products supported with timely and reliable service through our integrated dealer network. We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers and Rush Equipment Center as we extend our geographic focus through strategic acquisitions of new locations and expansions of our existing facilities.

Rush Truck Centers.  Since commencing operations as a Peterbilt heavy-duty truck dealer over 39 years ago, we have grown to operate Rush Truck Centers, which primarily sell new Class 8 heavy-duty Peterbilt trucks, at 44 locations in Alabama, Arizona, California, Colorado, Florida, New Mexico, Oklahoma, Tennessee and Texas. Class 8 trucks are defined by the American Automobile Association as trucks with a minimum gross vehicle weight rating above 33,000 pounds. Our Rush Truck Centers are strategically located to take advantage of ever increasing cross-border traffic between the United States and Mexico resulting from implementation of NAFTA.

Rush Equipment Center.  Our Rush Equipment Center in Houston, Texas, provides a full line of construction equipment for light to medium sized applications, including John Deere backhoe loaders, hydraulic excavators, crawler-dozers and four-wheel drive loaders.

Leasing and Rental Services.  Through our dealerships we provide a broad line of product selections for lease or rent, including Class 6, Class 7 and Class 8 Peterbilt trucks, heavy-duty cranes and a full array of John Deere construction equipment products, including a variety of construction equipment trailers. Our lease and rental fleets are offered on a daily, monthly or long-term basis.

Financial and Insurance Services.  Through our dealerships we offer third-party financing to assist customers in purchasing new and used trucks and construction equipment. Additionally, we sell a complete line of property and casualty insurance, including collision and liability insurance on trucks, cargo insurance and credit life insurance.

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Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. The Company believes the following accounting policies, which are also described in Note 2 of Notes to Consolidated Financial Statements, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Inventories.  Inventories are stated at the lower of cost or market value. Cost is determined by specific identification for new and used truck and construction equipment inventory and by the first-in, first-out method for tires, parts and accessories. An allowance is provided when it is anticipated that cost will exceed net realizable value.

Other Assets.  Other assets consist primarily of goodwill related to acquisitions and other intangible assets. As stated in Note 2 of Notes to Consolidated Financial Statements, Financial Accounting Standards Board Statement No. 142 (“SFAS 142”) provides that goodwill and other intangible assets that have indefinite useful lives will not be amortized, but instead must be tested at least annually for impairment, and intangible assets that have finite useful lives should continue to be amortized over their useful lives. SFAS 142 also provides specific guidance for testing goodwill and other nonamortized intangible assets for impairment. SFAS 142 requires management to make certain estimates and assumptions in order to allocate goodwill to reporting units and to determine the fair value of a reporting unit’s net assets and liabilities, including, among other things, an assessment of market condition, projected cash flows, interest rates and growth rates, which could significantly impact the reported value of goodwill and other intangible assets. SFAS 142 requires, in lieu of amortization, an annual impairment review of goodwill. The Company did not record an impairment charge related to the goodwill for its continuing operations as a result of its December 31, 2004 impairment review. The Company did, however, record an impairment of goodwill related to its discontinued operations at December 31, 2002 (see Note 3 of Notes to Consolidated Financial Statements). Furthermore, SFAS 142 exposes the Company to the possibility that changes in market conditions could result in significant impairment charges in the future, thus resulting in a potential increase in earnings volatility.

Revenue Recognition Policies.  Income on the sale of a vehicle or a piece of construction equipment is recognized when the customer executes a purchase contract with us, the unit has been delivered to the customer and there are no significant uncertainties related to financing or collectibility. Lease and rental income is recognized over the period of the related lease or rental agreement. Parts and service revenue is earned at the time the Company sells the parts to its customers or at the time the Company completes the service work order related to service provided to the customer’s unit. Payments received on prepaid maintenance plans are deferred as a component of accrued expenses and recognized as income when the maintenance is performed.

Finance and Insurance Revenue Recognition.  Finance income related to the sale of a unit is recognized over the period of the respective finance contract if the finance contract is retained by the Company, based on the effective interest rate method. During 2002, 2003 and 2004, no finance contracts were retained for any significant length of time by the Company because finance contracts are generally sold to finance companies concurrent with the sale of the related unit. The majority of finance contracts are sold without recourse. The Company’s liability related to finance contracts sold with recourse is generally limited to 5% to 20% of the outstanding amount of each note initiated on behalf of the finance company. However, in 2003 the Company instituted a full recourse finance program that accepts 100% liability, with some restrictions, for the outstanding amount of each note initiated on behalf of the finance company. In order for a contract to be accepted into this full recourse finance program, a customer must meet strict credit requirements or maintain a significant equity position in the truck being financed; therefore, less than one percent of the finance contracts sold by the Company are currently sold under the full recourse finance program and the Company does not expect to finance a significant percentage of its truck sales under this full recourse finance program in the future. The Company provides for an allowance for repossession losses and early repayment penalties.

The Company arranges financing for customers through various financial institutions and receives a commission from the lender equal to the difference between the interest rates charged to customers over the predetermined interest rates set by the financing institution. The Company also receives commissions from the sale of various insurance products to customers and extended service contracts. Revenue is recognized by the Company upon the sale of such finance and insurance contracts to the finance and insurance companies, net of a provision for estimated repossession losses and interest

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charge backs. The Company is not the obligor under any of these contracts. In the case of finance contracts, a customer may prepay, or fail to pay, thereby terminating the contract. If the customer terminates a retail finance contract or other insurance product prior to scheduled maturity, a portion of the commissions previously paid to the Company may be charged back to the Company depending on the terms of the relevant contracts. The estimate of ultimate charge back exposure is based on the Company’s historical charge back expense arising from similar contracts, including the impact of refinance and default rates on retail finance contracts and cancellation rates on other insurance products. The actual amount of historical charge backs has not been significantly different than the Company’s estimates.

Insurance Accruals.  The Company is self-insured for medical, workers compensation, and property and casualty insurance and calculates a reserve for those claims that have been incurred but not reported and for the remaining portion of those claims that have been reported. The Company uses information provided by the third-party administrators to determine the reasonableness of the calculations they perform.

Results of Operations

The following discussion and analysis includes the Company’s historical results of operations for 2002, 2003 and 2004.

The following table sets forth for the years indicated certain financial data as a percentage of total revenues:

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Revenues

Revenues increased $279.6 million, or 34.3%, from $815.3 million in 2003 to $1.1 billion in 2004. Sales of new and used trucks increased $236.4 million, or 47.1%, from $501.8 million in 2003 to $738.2 million in 2004.

Unit sales of new Class 8 trucks increased 47.8%, from 3,636 units in 2003 to 5,374 units in 2004. The increase in Class 8 units sales is being driven by the industry’s need to replace aging equipment after three consecutive years of U.S. truck sales lagging behind the normal replacement cycle. The Company’s average sales price per Class 8 truck remained relatively flat from 2003 to 2004 at $101,200. Based on estimates from A.C.T. Research, the Company believes that the deliveries of Class 8 trucks in the United States will increase in 2005 to approximately 250,000 units. In 2004, the Company retained a 2.7% share of the U.S. Class 8 truck sales market. On a same store basis, the Company expects to maintain this share in 2005, which would result in same store sales of approximately 6,500 Class 8 trucks based on the

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number of 2005 U.S. deliveries estimated by A.C.T. Research. In addition to same store sales, the Company expects the recent acquisition of ATS to increase our unit sales of Class 8 trucks in 2005. In 2004, ATS maintained a 1.1% share of the U.S. Class 8 truck sales market. The Company expects ATS to maintain this share in 2005, which would result in the sale of approximately 2,500 Class 8 trucks. These additional sales would bring the Company’s expected heavy-duty truck sales to 9,000 units in 2005. Industry expectations are for Class 8 truck deliveries to continue to increase through 2006 and then soften in 2007 primarily due to future emission laws, which are expected to increase the cost and reduce the efficiency of engines built on or after January 1, 2007.

Unit sales of new medium-duty trucks increased 96.4%, from 899 units in 2003 to 1,766 units in 2004. In 2004, the Company continued its concerted effort to improve its medium-duty truck sales by adding experienced medium-duty sales personnel, and introducing new Class 4 through 6 medium-duty franchises at some of our Rush Truck Centers to complement the existing Peterbilt medium-duty line, which consists primarily of Class 7 trucks. Class 4 through 6 unit truck sales accounted for 55% of the Company’s medium-duty unit sales in 2004 compared to 44% in 2003. The average sales price for Class 4 through 6 models during 2004 was $40,500 compared to $68,200 for the Class 7 Peterbilt medium-duty model. The increase in the percentage of Class 4 through 6 trucks sold by the Company in 2004 resulted in a 2.6% decrease in our average medium-duty truck sales price in 2004 compared to 2003. Overall, new medium-duty truck sales revenue increased $44.6 million in 2004 compared to 2003. In 2005, the Company expects to continue to add medium-duty franchises to certain dealerships and to increase its same store medium-duty sales and market share compared to 2004. The Company expects the recent acquisition of ATS to increase unit sales of medium-duty trucks by approximately 10.0% during 2005.

Unit sales of used trucks increased 12.2%, from 2,421 units in 2003 to 2,716 units in 2004. Used truck average revenue per unit increased by 7.0%. Historically, used truck demand is consistent with new truck demand. The Company expects used truck demand to remain high; however, our ability to sell used trucks is ultimately dependent upon our ability to acquire used trucks for resale. The Company expects the recent acquisition of ATS to increase unit sales of used trucks by approximately 28.0% during 2005.

Parts and service sales increased $35.4 million, or 14.2%, from $249.8 million in 2003 to $285.2 million in 2004. Same store parts and service sales increased $37.9 million, or 15.5%, in 2004 compared to 2003. The increase in parts and service sales was due to a combination of new business development, price increases for parts and labor, extension of our business hours and expansion of capacity made possible by the addition of service bays and technicians to certain locations. The Company expects same store parts and service revenue to increase by approximately 12.0% in 2005. The Company expects the recent acquisition of ATS to increase parts and service sales by an additional 15.0% in 2005, which would result in an overall increase in parts and service sales of 27.0% in 2005 compared to 2004.

Sales of new and used construction equipment increased $4.0 million, or 14.1%, from $28.3 million in 2003 to $32.3 million in 2004. This increase was primarily due to a change in product mix and price increases. According to John Deere, the Company’s market share in the Houston area construction equipment market was 16.7% in 2004 compared to 19.1% in 2003. In 2004, we focused on increasing our margins, which had an adverse effect on our market share. According to data compiled by John Deere, approximately 2,200 units of construction equipment were put into use in our area of responsibility in 2004 compared to 1,678 in 2003. The construction equipment industry expects to sell approximately 2,350 units of new construction equipment in the Houston area during 2005. The Company believes it can increase its market share slightly in 2005 compared to 2004.

Lease and rental revenues increased 5.4%, from $25.8 million in 2003 to $27.2 million in 2004. The increase in truck lease and rental revenue was due to the increase in our customer base during 2004. The Company expects lease and rental revenue to increase approximately 18.0% during 2005 compared to 2004 due to an increased number of units in the lease and rental fleet and the recent acquisition of ATS.

Finance and insurance revenues increased 25.4%, from $6.3 million in 2003 to $7.9 million in 2004. This increase is directly related to the increase in new and used truck revenue. The Company expects same store finance and insurance revenues to increase in 2005. The Company expects increased same store truck sales and the addition of the ATS locations to increase finance and insurance revenues by approximately $3.0 million in 2005. Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of operating profits.

Other income increased $0.8 million, or 20.6%, from $3.4 million in 2003 to $4.2 million in 2004. Other income revenue is primarily related to the gain on sale realized on trucks from the lease and rental fleet, commissions earned from John Deere for direct manufacturer sales into our area of responsibility, document fees related to truck sales and purchase

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discounts. The increase in other income during 2004 was primarily related to gains realized from the sales of trucks that were previously used in the Company’s leasing operations.

Gross Profit

Gross profit increased $31.8 million, or 20.7%, from $153.3 million in 2003 to $185.1 million in 2004. Gross profit as a percentage of sales decreased from 18.8% in 2003 to 16.9% in 2004. This decrease is primarily a result of a change in our product mix. Truck sales, a lower margin revenue item, increased as a percentage of total revenue from 61.5% in 2003 to 67.4% in 2004. Parts and service revenue, a higher margin revenue item, decreased as a percentage of total revenue from 30.6% in 2003 to 26.0% in 2004.

Gross margins on Class 8 truck sales decreased from 7.4% in 2003 to 7.0% in 2004. Manufacturers’ incentives for Class 8 trucks accounted for 35.8% of the gross margin in 2003 and 27.0% in 2004. Given the increasing demand for Class 8 trucks coupled with the expected increase in purchases from owner operators, which historically have rendered higher gross margins than fleet sales, the Company expects gross margins from Class 8 truck sales in 2005 to exceed those achieved in 2004. Each year the Company evaluates its reserve for new truck valuation losses. The Company recorded a $0.3 million loss provision to increase the Company’s reserve for new truck inventory valuation in 2003 and did not record a loss provision in 2004.

Gross margins on medium-duty truck sales increased from 5.8% in 2003 to 6.2% in 2004. Manufacturers’ incentives for medium-duty trucks accounted for 3.9% of the gross margin in 2003 and 3.8% in 2004. Sales of Class 4 through 6 models will continue to grow significantly as a percentage of total medium-duty sales which may result in a slight decrease in medium-duty gross margins in 2005.

Gross margins on used truck sales increased from 6.2% in 2003 to 9.8% in 2004. During 2003, the Company experienced lower than normal margins on used trucks sales because the Company was required to wholesale a large number of trade-in units from new fleet customers. The Company did not purchase as many used trucks from first time new truck fleet customers in 2004, which resulted in increased gross margins on used truck sales compared to 2003. Each year the Company evaluates its reserve for used truck valuation losses. The Company recorded a $0.4 million loss provision to the Company’s reserve for used truck valuation losses in 2004 compared to a $1.0 million loss provision recognized during 2003. In 2005, the Company expects to maintain the margins achieved in 2004.

Gross margins from the Company’s parts, service and body shop operations decreased from 39.4% in 2003 to 37.9% in 2004. The decrease in gross margins was primarily due to parts sales becoming a larger percentage of the Company’s overall parts and service revenues. Historically, gross margins on parts sales are approximately 60% lower than gross margins on service sales. Additionally, the Company has increased preventative maintenance services that are provided at lower margins than traditional repair work, and has selectively provided discounted labor rates to garner additional sales at certain locations. Gross profit dollars for the parts, service and body shop departments increased from $98.5 million in 2003 to $108.0 million in 2004. The Company expects the increase in same store gross profit to approximate the expected increase in parts, service and body shop sales of 12.0% in 2005 compared to 2004.

Gross margins on new and used construction equipment sales increased from 9.9% in 2003 to 13.0% in 2004. The increase was attributable to price increases and a change in the types of products sold during 2004. The Company expects 2005 gross margins on new and used construction equipment sales to be consistent with those achieved in 2004 and overall gross profit growth on new and used construction equipment sales to be directly correlated to sales growth.

Gross profit generated from lease and rental sales increased from 25.9% in 2003 to 27.4% in 2004. The Company’s policy is to depreciate its lease and rental fleet as quickly as is acceptable. This policy results in the Company realizing small gross margins while the unit is in service and a corresponding larger gain on sale when the unit is sold at the end of the lease term. The Company expects 2005 gross margins to be consistent with those achieved in 2004 and overall gross profit growth to be directly correlated to increases in lease and rental sales.

The increase in finance and insurance revenues and other income, as described above, has limited direct costs and, therefore, contributes a disproportionate share of gross profit. The Company expects gross profit from finance and insurance sales and other income to increase in 2005 based on projected increases in truck sales.

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Selling, General and Administrative Expenses

Selling General and Administrative (“SG&A”) expenses increased $17.7 million, or 14.3%, from $124.2 million in 2003 to $141.9 million in 2004. Same store SG&A expenses increased $18.8 million, or 15.1%, from 2003 to 2004. This increase was primarily due to increased salary expense and increased commissions corresponding to the increase in gross profit. SG&A expenses as a percentage of sales decreased from 15.2% in 2003 to 13.0% in 2004. SG&A expenses as a percentage of sales have historically ranged from 11.0% to 16.0%. Including the recently acquired ATS locations, the Company expects SG&A expenses as a percentage of sales to remain at the lower end of this range while the demand for trucks remains high. The Company estimates that the implementation of SFAS 123(R) will increase our SG&A expenses by approximately $1.0 million in 2005. The Company’s management continually monitors SG&A expenses.

Interest Expense, Net

Net interest expense decreased $0.3 million, or 4.7%, from $6.3 million in 2003 to $6.0 million in 2004. Net interest expense decreased primarily as the result of the increase in interest income earned on the net proceeds of our public offering of Class A Common Stock, which closed in November 2004. During 2004, the Company’s average cash balance was $46.3 million compared to $13.1 million in 2003. Based on the Company’s current debt levels, cash balance and expected interest rates, the Company expects net interest expense to increase to approximately $8.5 million in 2005.

Gain on Sale of Assets

Gain on sale of assets decreased $1.4 million, from $2.0 million in 2003 to $0.6 million in 2004. The gain in 2004 was primarily related to the replacement of fixed assets used in the operation of the business. The gain recognized in 2003 was primarily related to the sale of the assets of Rush Truck Centers of Louisiana, Inc. The Company expects gains on sale of assets in 2005 to consist primarily of the replacement of fixed assets used in the operation of the business.

Income From Continuing Operations Before Income Taxes

Income from continuing operations before income taxes increased by $13.0 million, or 82.3%, from $15.8 million in 2003 to $28.8 million in 2004, as a result of the factors described above. Industry experts predict an increase in Class 8 truck sales of approximately 23% for 2005. Based on this predicted increase and our acquisition of ATS, the Company believes that income from continuing operations in 2005 will significantly exceed that of 2004.

Income Taxes From Continuing Operations

Income taxes from continuing operations increased $5.5 million, or 87.3%, from $6.3 million in 2003 to $11.8 million in 2004. The Company has provided for taxes at a 40% effective rate and expects the effective tax rate to be approximately 38% in 2005.

Loss From Discontinued Operations, Net of Income Taxes

Loss from discontinued operations, net of income taxes, decreased from a loss of $0.6 million in 2003 to a loss of $0.3 million in 2004. The loss recorded during 2003 represents the net operating results of D&D and includes costs of $983,000 related to the liquidation of the Hockley, Texas store. The loss recorded during 2004 includes net operating profit of D&D of $0.3 million, a net charge of $0.2 million related to the valuation of the Hockley, Texas real estate and a $0.4 million income tax adjustment. The Company sold all assets related to its discontinued operations during 2004 and does not expect to have any discontinued operations in 2005.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues

Revenues increased $58.2 million, or 7.7%, from $757.1 million in 2002 to $815.3 million in 2003. Sales of new and used trucks increased $13.3 million, or 2.7%, from $488.5 million in 2002 to $501.8 million in 2003.

Unit sales of new Class 8 trucks decreased 9.6%, from 4,022 units in 2002 to 3,636 units in 2003. The decline in new Class 8 truck sales was primarily due to the pre-buy experienced during the last half of 2002 caused by emission law changes that became effective October 1, 2002 and the buying cycle of one of the Company’s major fleet customers, who

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made a significantly larger purchase in 2002 than in 2003. The Company’s average sales price per Class 8 truck increased 7.5% in 2003 compared to 2002. This increase was directly related to the increased engine costs that resulted from the new emission laws.

Unit sales of new medium-duty trucks increased 29.4%, from 695 units in 2002 to 899 units in 2003. In 2003, the Company made a concerted effort to improve its medium-duty truck sales by adding experienced medium-duty sales personnel, and introducing new medium-duty franchises to complement our existing Peterbilt medium-duty line. As a result of these actions, 44% of the Company’s medium-duty unit sales in 2003 were GMC, Hino and UD (Nissan) models, compared to only 21% in 2002. The average sales price for these models was $38,700 compared to $66,500 for the Peterbilt medium-duty model, resulting in a decrease of the average sales price for all medium-duty trucks by 8.3% in 2003 compared to 2002. Overall, new medium-duty truck sales revenue increased $7.6 million in 2003 compared to 2002.

Unit sales of used trucks increased 14.7%, from 2,111 units in 2002 to 2,421 units in 2003. Used truck average revenue per unit increased by 3.8%. During 2003, the increased demand for used trucks was partially due to the new emission laws that became effective October 1, 2002. The Company believes some customers were skeptical of the new engines and opted to purchase used trucks. The increase in the average used truck price was a sign that the industry had been able to work through the excess supply of used trucks in the market caused by the high volume of new truck unit sales during 1998 through 2000.

Parts and service sales increased $38.3 million, or 18.1%, from $211.5 million in 2002 to $249.8 million in 2003. Same store parts and service sales increased $19.7 million, or 9.3%, in 2003 compared to 2002. This increase was in line with management’s expectations that consider business development coupled with price increases for parts and labor. The remaining increase was attributable to new store additions.

Sales of new and used construction equipment increased $4.0 million, or 16.5%, from $24.3 million in 2002 to $28.3 million in 2003. This increase was consistent with the overall increase in unit sales for the Houston, Texas construction equipment market during 2003. According to John Deere, the Company’s market share in the Houston area construction equipment market was 17.5% in 2003 compared to 14.6% in 2002. According to data compiled by John Deere, approximately 1,656 units of construction equipment were put into use in our area of responsibility in 2003 compared to 1,387 in 2002.

Lease and rental revenues increased 2.0%, from $25.3 million in 2002 to $25.8 million in 2003. As part of a planned reduction in our construction equipment rental business, construction equipment lease and rental revenues decreased $0.6 million, or 50.0%, from 2002 to 2003. Truck lease and rental revenue increased $1.2 million, or 5.0%, from 2002 to 2003. The increase in truck lease and rental revenue was due to the increase in our customer base during 2003.

Finance and insurance revenues increased 16.7%, from $5.4 million in 2002 to $6.3 million in 2003. Approximately 88.9% of this increase was related to the addition of the new dealerships in Florida and Alabama. The remaining increase was related to additional customers qualifying for financing due to a change in the credit practices of the Company’s finance providers.

Other income increased $1.2 million, or 54.5%, from $2.2 million in 2002 to $3.4 million in 2003. The primary reason for the increase during 2003 was related to gains resulting from the sales of trucks that had been leased by the Company.

Gross Profit

Gross profit increased $12.1 million, or 8.6%, from $141.2 million in 2002 to $153.3 million in 2003. Approximately $10.6 million of the increase in gross profit was related to the acquisition of the Florida and Alabama dealerships. Gross profit as a percentage of sales remained relatively flat at 18.7% in 2002 and 18.8% in 2003.

Gross margins on Class 8 truck sales were flat at 7.4% in 2002 and 2003. Manufacturers’ incentives for Class 8 trucks accounted for 27.9% of the gross margin in 2002 and 35.8% in 2003. The Company recorded a $0.3 million loss provision to increase the Company’s reserve for new truck inventory valuation in 2003 compared to $0 in 2002.

Gross margins on medium-duty truck sales decreased from 6.6% in 2002 to 5.8% in 2003, primarily due to the previously discussed change in product mix. Manufacturers’ incentives for medium-duty trucks did not contribute to gross

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margins in 2002 and accounted for 3.9% of the gross margin in 2003. Gross margins on GMC, Hino and UD (Nissan) models were approximately 3.4% in 2003 compared to a gross margin of 5.4% of the Peterbilt medium-duty model.

Gross margins on used truck sales decreased from 9.9% in 2002 to 6.2% in 2003, primarily due to the mix of wholesale versus retail used truck sales. The Company experienced higher than normal used truck wholesale transactions related to the trade-in units from first time new truck fleet customers in 2003. The Company recorded a $1.0 million loss provision, primarily related to trade-in units from first time new truck fleet customers, to the Company’s reserve for used truck valuation losses in 2003 compared to a $0.5 million loss provision recognized during 2002.

Gross margins from the Company’s parts, service and body shop operations decreased from 40.9% in 2002 to 39.4% in 2003. There were various reasons for this decrease, including nonproprietary parts sales becoming a larger percentage of the Company’s overall parts sales and competitive pricing pressures from providers of nonproprietary parts. Gross profit dollars for the parts, service and body shop departments increased from $86.4 million in 2002 to $98.4 million in 2003.

Gross margins on new and used construction equipment sales remained relatively flat at approximately 10.0% in 2002 and 2003.

Gross profit generated from lease and rental sales decreased slightly from 27.0% in 2002 to 25.9% in 2003.

As previously discussed, the increase in finance and insurance revenues and other income has limited direct costs and, therefore, contributes a disproportionate share of gross profit.

Selling, General and Administrative Expenses

SG&A expenses increased $12.5 million, or 11.2%, from $111.7 million in 2002 to $124.2 million in 2003. Approximately $7.6 million of SG&A expenses were related to the acquisitions of the Florida and Alabama dealerships. Same store SG&A expenses increased $4.9 million, or 4.4%, from 2002 to 2003. The remaining increase was partially due to increased salary expense and increased commissions corresponding to the increase in gross profit. SG&A expenses as a percentage of sales increased from 14.8% to 15.2% from 2002 to 2003. The Company’s management continually monitors SG&A expenses

Interest Expense, Net

Net interest expense decreased $0.2 million, or 3.1%, from $6.5 million in 2002 to $6.3 million in 2003. Interest expense decreased primarily as the result of declining interest rates.

Gain on Sale of Assets

Gain on sale of assets increased $1.8 million, from $0.2 million in 2002 to $2.0 million in 2003. The gain in 2002 was primarily related to the replacement of fixed assets used in the operation of the business. The gain recognized in 2003 was primarily related to the sale of the assets of Rush Truck Centers of Louisiana, Inc.

Income From Continuing Operations Before Income Taxes

Income from continuing operations before income taxes increased by $1.2 million, or 8.3%, from $14.5 million in 2002 to $15.7 million in 2003, as a result of the factors described above.

Income Taxes From Continuing Operations

Income taxes from continuing operations increased $0.5 million, or 8.6%, from $5.8 million in 2002 to $6.3 million in 2003.

Loss From Discontinued Operations, Net of Income Taxes

Loss from discontinued operations net of income taxes decreased from $10.5 million in 2002 to $0.6 million in 2003. The loss recorded during 2002 includes net operating losses of the Michigan construction equipment dealerships of $0.9 million and net operating losses of D&D of $1.3 million, as well as disposal costs of $2.5 million for the Michigan

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construction equipment dealerships and $5.8 million for D&D. The loss recorded during 2003 includes net operating results of D&D of approximately $0.6 million.

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. If the demand for heavy-duty trucks remains strong through 2006, as predicted by industry analysts, the Company expects to experience net increases in cash and cash equivalents.

At December 31, 2004, the Company had working capital of approximately $138.2 million, including $158.2 million in cash, $30.3 million in accounts receivable, $189.8 million in inventories, $1.4 million in prepaid expenses and other, and $1.5 million in deferred income taxes, offset by $168.0 million outstanding under floor plan notes payable, $16.1 million in current maturities of long-term debt, $2.4 million in advances outstanding under lines of credit, $17.0 million of trade accounts payable and $39.5 million in accrued expenses. The aggregate maximum borrowing limits under working capital lines of credit with the Company’s primary truck lender are approximately $13.5 million. Advances outstanding under this line of credit at December 31, 2004 were $10,000, leaving $13.49 million available for future borrowings. The Company has three separate secured lines of credit that provide for an aggregate maximum borrowing of $15.9 million. Advances outstanding under these secured lines of credit in aggregate were $2.4 million, with an additional $4.2 million pledged to secure various letters of credit related to self-insurance products, leaving $9.3 million available for future borrowings as of December 31, 2004.

The Company is constructing a new dealership to replace our existing Mobile, Alabama Rush Truck Center. The total estimated cost of this dealership is $2.6 million. As of December 31, 2004, approximately $1.7 million has been paid to purchase the land and to construct the dealership. Construction is expected to be complete in the first quarter of 2005. The Company has also committed $1.5 million to renovate a building purchased for the relocation of the recently acquired Nashville, Tennesse Rush Truck Center. The Company has no other material commitments for capital expenditures as of December 31, 2004. However, the Company will continue to purchase vehicles that are necessary to operate its lease and rental division. Furthermore, management will continue to authorize capital expenditures for new buildings and expansion of facilities based on market opportunities.

The Company’s floor plan agreement with its primary truck lender limits the Company’s borrowing capacity based on the number of new and used trucks that may be financed. As of December 31, 2004, the aggregate amount of unit capacity for new trucks was 1,542 and the aggregate amount of unit capacity for used trucks was 540; the availability for new trucks was 257 and the availability for used trucks was 132. The amount available under the Company’s floor plan agreement with Citicapital, one of its construction equipment lenders, is based on the book value of the Company’s construction equipment inventory.

During 2004, operating activities resulted in net cash used in operations of $5.6 million. Cash provided by operations was primarily due to income from continuing operations of $17.2 million coupled with provisions for depreciation and amortization of $15.9 million, an increase in provisions for deferred income tax of $4.1 million, an increase of $3.4 million in the tax benefit realized from exercise of employee stock options and an increase of accounts payable and accrued expenses of $11.2 million, which was offset by increases in inventories of $49.7 million, an increase in accounts receivable of $5.8 million and a gain on sale of property plant and equipment of $1.8 million.

During 2004, the Company used $34.8 million in investing activities. This consisted of purchases of property and equipment of $44.6 million, business acquisitions of $3.5 million and an increase in other assets of $0.9 million, which were offset by proceeds from the sale of property and equipment of $14.1 million. Property and equipment purchases are partially related to the purchase of 201 additional units for the leasing operations for $18.5 million during 2004. Approximately $7.1 million of property and equipment expenditures was for the replacement of capital equipment and $7.1 million was for the replacement of the corporate aircraft. Additionally, the Company acquired building, land and leasehold improvements of $11.9 million. The Company expects to purchase more trucks for its leasing operations in 2005 based on expected increases in customer demand. The Company expects to make capital expenditures for recurring items such as computers, shop equipment and vehicles of approximately $7.0 million in 2005.

Net cash provided by financing activities in 2004 amounted to $164.3 million. Net cash provided by financing activities primarily consisted of proceeds from the issuance of shares in the November 2004 public offering and exercises

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of employee stock options totaling $113.8 million, an increase in notes payable of $40.5 million and net draws of floor plan notes payable of $59.8 million, offset by principal payments on notes payable of $34.4 million and net payments on lines of credit of $15.3 million. The proceeds from notes payable are primarily related to the increase in the lease and rental fleet and real estate financing. $76.9 million of the proceeds from the stock offering were used in January 2005 to purchase certain assets of ATS.

During 2003, operating activities resulted in net cash provided by operations of $16.3 million. Cash provided by operations was primarily due to income from continuing operations of $9.5 million coupled with provisions for depreciation and amortization of $15.5 million, an increase in provision for deferred income tax of $3.7 million and an increase of accounts payable and accrued expenses of $1.2 million, which was partially offset by increases in inventories of $13.2 million. The increase in inventories resulted from the addition of the new stores in Florida and Alabama.

During 2003, the Company used $16.8 million in investing activities. This consisted of purchases of property and equipment of $18.8 million and business acquisitions of $5.5 million, which were offset by proceeds from the sale of property and equipment of $7.5 million. Property and equipment purchases are partially related to the purchase of 77 additional trucks for $8.9 million for the leasing division during 2003. Additionally, the Company acquired building, land and leasehold improvements of $4.2 million. Approximately $5.7 million of property and equipment expenditures was for routine replacement of capital equipment.

Net cash provided by financing activities in 2003 amounted to $10.1 million. Net cash provided by financing activities was primarily due to proceeds from notes payable of $19.2 million and net draws of floor plan notes payable of $19.6 million, offset by principal payments on notes payable of $24.1 million and net payments on lines of credit of $4.7 million. The proceeds from notes payable are primarily related to the increase in the lease and rental fleet and real estate financing.

Our customers’ new and used truck financing is typically arranged through Citicapital or PACCAR Financial. The Company financed approximately $239.7 million of new and used truck sales in 2004. The Company’s contracts with Citicapital and PACCAR Financial provide for payment to the Company of all finance charges in excess of a negotiated discount rate in the month following the date of financing, with such payments subject to offsets resulting from the early payoff or defaults under installment contracts previously initiated on behalf of and sold to Citicapital and PACCAR Financial by the Company. A majority of finance contracts are sold without recourse to the Company. The Company’s recourse liability, related to finance contracts sold with recourse to the Company, is generally limited to 5% to 20% of the outstanding amount of each note initiated on behalf of the finance company. However, in 2003 the Company instituted a full recourse finance program that accepts 100% liability, with some restrictions, for the outstanding amount of each note initiated on behalf of the finance company. In order for a contract to be accepted into this full recourse finance program, a customer must meet strict credit requirements or maintain a significant equity position in the truck being financed; therefore, less than one percent of the finance contracts sold by the Company are currently sold under the full recourse finance program and the Company does not expect to finance a significant percentage of its truck sales under this full recourse finance program in the future. The Company provides an allowance for repossession losses and early repayment penalties.

In addition, through The CIT Group, Citicapital, John Deere Credit and others, the Company arranged customer financing for approximately $20.2 million of our new and used construction equipment sales in 2004. Generally, construction equipment financings are memorialized through the use of installment or lease contracts, which are secured by the construction equipment financed, and generally require a down payment up to 10% of the value of the financed piece of construction equipment, with the remaining balance being financed over a three to five-year period. The Company experiences no repossession loss on construction equipment financings because such financings are sold to third parties without recourse.

Substantially all of the Company’s Peterbilt truck purchases from PACCAR are made on terms requiring payment within 15 days or less from the date the trucks are shipped from the factory. The Company finances 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 to GMAC on the amount financed, but is not required to commence loan principal repayments prior to the sale of new vehicles for a period of 12 months and for used vehicles for a period of three months. On December 31, 2004, the Company had approximately $159.8 million outstanding under its floor plan financing arrangement with GMAC. GMAC permits the Company to earn interest on overnight funds deposited by the Company with GMAC at

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the prime rate less 0.90%. The Company is permitted to earn interest on overnight funds of up to 10% of the amount borrowed under its floor plan financing arrangement with GMAC.

Substantially all of the Company’s new construction equipment purchases are financed by John Deere and Citicapital. The Company finances substantially all of the purchase price of its new equipment inventory under its floor plan facilities. The agreement with John Deere provides an interest free financing period after which time the amount financed is required to be paid in full. When construction equipment is sold prior to the expiration of the interest free period, the Company is required to repay the principal within approximately ten days of the sale. If the equipment financed by John Deere is not sold within the interest free period, it is transferred to the Citicapital floor plan arrangement. The Company makes principal payments for sold inventory to Citicapital on the 15^th day of each month. Used and rental equipment is financed to a maximum book value under a floor plan arrangement with Citicapital. 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 on the 15^th day of each month following the sale. The loans are collateralized by a lien on the equipment. The Company’s floor plan agreements limit the aggregate amount of borrowings based on the book value of new and used equipment units. As of December 31, 2004, the Company’s floor plan arrangement with Citicapital permits the financing of up to $10.5 million in construction equipment. On December 31, 2004, the Company had $1.6 million outstanding under its floor plan financing arrangements with John Deere and $6.6 million outstanding under its floor plan financing arrangement with Citicapital.