Attached files
file | filename |
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EX-31.1 - EX-31.1 - RUSH ENTERPRISES INC \TX\ | c04506exv31w1.htm |
EX-32.1 - EX-32.1 - RUSH ENTERPRISES INC \TX\ | c04506exv32w1.htm |
EX-32.2 - EX-32.2 - RUSH ENTERPRISES INC \TX\ | c04506exv32w2.htm |
EX-31.2 - EX-31.2 - RUSH ENTERPRISES INC \TX\ | c04506exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-20797
RUSH ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas | 74-1733016 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
555 I.H. 35 South, Suite 500
New Braunfels, Texas 78130
(Address of principal executive offices)
(Zip Code)
New Braunfels, Texas 78130
(Address of principal executive offices)
(Zip Code)
(830) 626-5200
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o
(Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicated below is the number of shares outstanding of each of the issuers classes of common
stock, as of August 4, 2010.
Number of | ||||
Shares | ||||
Title of Class | Outstanding | |||
Class A Common Stock, $.01 Par Value |
26,657,377 | |||
Class B Common Stock, $.01 Par Value |
10,692,641 |
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2010 AND DECEMBER 31, 2009
(In Thousands, Except Shares)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2010 AND DECEMBER 31, 2009
(In Thousands, Except Shares)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 135,779 | $ | 149,095 | ||||
Accounts receivable, net |
54,620 | 38,869 | ||||||
Inventories, net |
308,891 | 252,219 | ||||||
Prepaid expenses and other |
3,109 | 3,650 | ||||||
Assets held for sale |
23,929 | 22,719 | ||||||
Deferred income taxes, net |
9,195 | 11,414 | ||||||
Total current assets |
535,523 | 477,966 | ||||||
Investments |
7,575 | 7,575 | ||||||
Property and equipment, net |
410,098 | 353,841 | ||||||
Goodwill, net |
146,114 | 136,761 | ||||||
Other assets, net |
3,223 | 1,154 | ||||||
Total assets |
$ | 1,102,533 | $ | 977,297 | ||||
Liabilities and shareholders equity |
||||||||
Current liabilities: |
||||||||
Floor plan notes payable |
$ | 238,590 | $ | 189,256 | ||||
Current maturities of long-term debt |
63,457 | 55,545 | ||||||
Current maturities of capital lease obligations |
6,456 | 5,730 | ||||||
Trade accounts payable |
38,686 | 22,427 | ||||||
Accrued expenses |
55,640 | 40,843 | ||||||
Total current liabilities |
402,829 | 313,801 | ||||||
Long-term debt, net of current maturities |
179,681 | 153,957 | ||||||
Capital lease obligations, net of current maturities |
28,902 | 28,714 | ||||||
Deferred income taxes, net |
52,951 | 54,600 | ||||||
Shareholders equity: |
||||||||
Preferred stock, par value $.01 per share;
1,000,000 shares authorized; 0 shares
outstanding in 2010 and 2009 |
| | ||||||
Common stock, par value $.01 per share;
60,000,000 class A shares and 20,000,000 class B
shares authorized; 26,624,753 class A shares and
10,692,641 class B shares outstanding in 2010;
and 26,437,848 class A shares and 10,689,375
class B shares outstanding in 2009 |
389 | 388 | ||||||
Additional paid-in capital |
192,135 | 188,116 | ||||||
Treasury stock, at cost: 1,639,843 class B shares |
(17,948 | ) | (17,948 | ) | ||||
Retained earnings |
263,594 | 255,669 | ||||||
Total shareholders equity |
438,170 | 426,225 | ||||||
Total liabilities and shareholders equity |
$ | 1,102,533 | $ | 977,297 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
New and used truck sales |
$ | 191,309 | $ | 187,154 | $ | 371,913 | $ | 383,142 | ||||||||
Parts and service |
118,529 | 98,706 | 220,357 | 203,466 | ||||||||||||
Construction equipment sales |
| | | | ||||||||||||
Lease and rental |
16,255 | 13,236 | 30,287 | 26,712 | ||||||||||||
Finance and insurance |
2,047 | 2,230 | 3,532 | 3,871 | ||||||||||||
Other |
1,699 | 1,245 | 3,038 | 2,871 | ||||||||||||
Total revenue |
329,839 | 302,571 | 629,127 | 620,062 | ||||||||||||
Cost of products sold: |
||||||||||||||||
New and used truck sales |
174,817 | 179,846 | 341,163 | 362,673 | ||||||||||||
Parts and service |
72,222 | 60,565 | 134,851 | 124,547 | ||||||||||||
Construction equipment sales |
| | | | ||||||||||||
Lease and rental |
13,621 | 11,589 | 25,871 | 23,517 | ||||||||||||
Total cost of products sold |
260,660 | 252,000 | 501,885 | 510,737 | ||||||||||||
Gross profit |
69,179 | 50,571 | 127,242 | 109,325 | ||||||||||||
Selling, general and administrative |
55,148 | 48,735 | 105,285 | 98,917 | ||||||||||||
Depreciation and amortization |
3,676 | 4,680 | 7,223 | 8,523 | ||||||||||||
Gain (loss) on sale of assets |
7 | 22 | (4 | ) | 78 | |||||||||||
Operating income (loss) |
10,362 | (2,822 | ) | 14,730 | 1,963 | |||||||||||
Interest expense, net |
1,397 | 1,412 | 2,694 | 2,960 | ||||||||||||
Income (loss) from continuing operations before taxes |
8,965 | (4,234 | ) | 12,036 | (997 | ) | ||||||||||
Provision (benefit) for income taxes |
3,549 | (2,545 | ) | 4,698 | (1,643 | ) | ||||||||||
Income (loss) from continuing operations |
5,416 | (1,689 | ) | 7,338 | 646 | |||||||||||
Income from discontinued operations, net of tax |
272 | 168 | 587 | 696 | ||||||||||||
Net income (loss) |
$ | 5,688 | $ | (1,521 | ) | $ | 7,925 | $ | 1,342 | |||||||
Earnings (loss) per common share Basic: |
||||||||||||||||
Income (loss) from continuing operations |
$ | .15 | $ | (.05 | ) | $ | .20 | $ | .02 | |||||||
Net income (loss) |
$ | .15 | $ | (.04 | ) | $ | .21 | $ | .04 | |||||||
Earnings (loss) per common share Diluted: |
||||||||||||||||
Income (loss) from continuing operations |
$ | .14 | $ | (.05 | ) | $ | .19 | $ | .02 | |||||||
Net income (loss) |
$ | .15 | $ | (.04 | ) | $ | .21 | $ | .04 | |||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
37,292 | 37,039 | 37,232 | 37,015 | ||||||||||||
Diluted |
38,189 | 37,039 | 38,014 | 37,389 |
The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 7,925 | $ | 1,342 | ||||
Adjustments to reconcile net income to net cash provided by operating
activities: |
||||||||
Depreciation and amortization |
21,312 | 20,824 | ||||||
(Gain) on sale of property and equipment |
(36 | ) | (77 | ) | ||||
Stock-based compensation expense related to stock options
and employee stock purchases |
2,902 | 2,481 | ||||||
Provision (benefit) for deferred income tax expense |
570 | (4,304 | ) | |||||
Excess tax benefits from stock-based compensation |
(209 | ) | (206 | ) | ||||
Change in accounts receivable, net |
(11,354 | ) | 6,176 | |||||
Change in inventories |
(43,902 | ) | 70,308 | |||||
Change in prepaid expenses and other, net |
743 | 1,019 | ||||||
Change in trade accounts payable |
16,084 | (8,106 | ) | |||||
Change in accrued expenses |
11,451 | (11,462 | ) | |||||
Net cash provided by operating activities |
5,486 | 77,995 | ||||||
Cash flows from investing activities: |
||||||||
Acquisition of property and equipment |
(28,558 | ) | (23,513 | ) | ||||
Proceeds from the sale of property and equipment |
123 | 132 | ||||||
Business acquisitions |
(32,450 | ) | | |||||
Change in other assets |
(1,996 | ) | 5 | |||||
Net cash (used in) investing activities |
(62,881 | ) | (23,376 | ) | ||||
Cash flows from financing activities: |
||||||||
Draws (payments) on floor plan notes payable, net |
44,504 | (64,022 | ) | |||||
Proceeds from long-term debt |
26,854 | 6,137 | ||||||
Principal payments on long-term debt |
(24,806 | ) | (20,550 | ) | ||||
Principal payments on capital lease obligations |
(3,518 | ) | (2,217 | ) | ||||
Debt issuance costs |
(73 | ) | (17 | ) | ||||
Excess tax benefits from stock-based compensation |
209 | 206 | ||||||
Proceeds from issuance of shares relating to employee stock options and
employee stock purchases |
909 | 384 | ||||||
Net cash (used in) financing activities |
44,079 | (80,079 | ) | |||||
Net (decrease) in cash and cash equivalents |
(13,316 | ) | (25,460 | ) | ||||
Cash and cash equivalents, beginning of period |
149,095 | 146,411 | ||||||
Cash and cash equivalents, end of period |
$ | 135,779 | $ | 120,951 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 6,528 | $ | 7,234 | ||||
Income taxes, net of refunds |
$ | (3,147 | ) | $ | 3,500 | |||
Noncash operating activities: |
||||||||
Asset impairment (See Note 11) |
$ | | $ | 4,920 | ||||
Noncash investing activities: |
||||||||
Assets acquired under capital leases |
$ | 4,432 | $ | 6,240 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 Principles of Consolidation and Basis of Presentation
The interim consolidated financial statements included herein have been prepared by Rush
Enterprises, Inc. and its subsidiaries (collectively referred to as the Company), without
audit, pursuant to the rules and regulations of the Securities and Exchange Commission. All
adjustments have been made to the accompanying interim consolidated financial statements,
which, in the opinion of the Companys management, are necessary for a fair presentation of
the Companys operating results. All adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is recommended that these interim consolidated
financial statements be read in conjunction with the consolidated financial statements and the
notes thereto included in the Companys Annual Report on Form 10-K for the year ended December
31, 2009. Results of operations for interim periods are not necessarily indicative of results
that may be expected for any other interim periods or the full fiscal year.
2 Goodwill and Other Intangible Assets
Goodwill is the excess of the purchase price over the fair value of identifiable net
assets acquired in business combinations accounted for under the purchase method. The Company
does not amortize goodwill, but tests goodwill for impairment annually in the fourth quarter,
or when indications of potential impairment exist. These indicators would include a
significant change in operating performance, or a planned sale or disposition of a significant
portion of the business, among other factors. The Company tests for goodwill impairment
utilizing a fair value approach at the reporting unit level. A reporting unit is an operating
segment, for which discrete financial information is prepared and regularly reviewed by
segment management. The Company has deemed its reporting unit to be its operating segment, the
Truck segment, which is the level at which segment management regularly reviews operating
results and makes resource allocation decisions. The Construction Equipment segment will no
longer be reported as a separate business segment due to the Companys decision to sell its
John Deere construction equipment business. See Note 13 for further discussion of the sale of
the construction equipment business.
The impairment test for goodwill involves comparing the fair value of a reporting unit to
its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds
its fair value, a second step is required to measure the goodwill impairment loss. The second
step includes hypothetically valuing all the tangible and intangible assets of the reporting
unit as if the reporting unit had been acquired in a business combination. Then, the implied
fair value of the reporting units goodwill is compared to the carrying amount of that
goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair
value of the goodwill, the Company would recognize an impairment loss in an amount equal to
the excess, not to exceed the carrying amount. The Company determines the fair values
calculated in an impairment test using the discounted cash flow method, which requires
assumptions and estimates regarding future revenue, expenses and cash flow projections. The
analysis is based upon available information regarding expected future cash flows of each
reporting unit discounted at rates consistent with the cost of capital specific to the
reporting unit.
Goodwill is tested for impairment during the fourth quarter of each year and no
impairment write down was required in the fourth quarter of 2009. However, the Company cannot
predict the occurrence of certain events that might adversely affect the reported value of
goodwill in the future. Such events may include, but are not limited to, strategic decisions
made in response to economic and competitive conditions or another significant decrease in
general economic conditions in the United States.
During the second quarter of 2009, the Company performed an interim evaluation of
goodwill due to General Motors decision to terminate production of medium-duty GMC trucks,
which resulted in the winding-down of the Companys medium-duty GMC truck franchises. The
goodwill allocation was based on the relative fair values of the medium-duty GMC truck
franchises and the portion of the Companys Truck Segment remaining. During the second
quarter of 2009, the Companys Truck Segment recorded a non-cash charge of $0.8 million
related to the impairment of the goodwill of its medium-duty GMC truck franchises. See Note
11 for further discussion of the wind-down of the Companys medium-duty GMC truck franchise
agreements.
6
Table of Contents
3 Commitments and Contingencies
The Company is contingently liable to finance companies for certain notes initiated on
behalf of such finance companies related to the sale of commercial vehicles and construction
equipment. The majority of finance contracts are sold without recourse against the Company. A
majority of the Companys 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. The Company provides for an allowance for repossession losses and
early repayment penalties that it may be liable for under finance contracts sold without
recourse.
The Company is involved in various claims and legal actions arising in the ordinary
course of business. The Company believes it is unlikely that the final outcome of any of the
claims or proceedings to which the Company is a party would have a material adverse effect on
the Companys financial position or results of operations; however, due to the inherent
uncertainty of litigation, there can be no assurance that the resolution of any particular
claim or proceeding would not have a material adverse effect on the Companys results of
operations for the fiscal period in which such resolution occurred.
In 2006, the Company signed an agreement with Titan Technology Partners to implement SAP
enterprise software and a new SAP dealership management system. The cost of the SAP software
and implementation is estimated at approximately $34.0 million, of which $31.7 million was
expended at June 30, 2010.
4 Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator: |
||||||||||||||||
Numerator for basic and diluted earnings per
share, net income (loss) available to common
shareholders |
$ | 5,688,000 | $ | (1,521,000 | ) | $ | 7,925,000 | $ | 1,342,000 | |||||||
Denominator: |
||||||||||||||||
Denominator for basic earnings per share,
adjusted weighted average shares outstanding |
37,291,659 | 37,038,835 | 37,231,524 | 37,015,257 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Employee and director stock
options and restricted share awards |
897,669 | | 782,900 | 374,184 | ||||||||||||
Denominator for diluted earnings per share,
adjusted weighted average shares outstanding
and assumed conversions |
38,189,328 | 37,038,835 | 38,014,424 | 37,389,441 | ||||||||||||
Basic earnings (loss) per common share |
$ | .15 | $ | (.04 | ) | $ | .21 | $ | .04 | |||||||
Diluted earnings (loss) per common share and common
share equivalents |
$ | .15 | $ | (.04 | ) | $ | .21 | $ | .04 | |||||||
Options to purchase shares of common stock that were outstanding for the three
months and six months ended June 30, 2010 and 2009 that were not included in the computation
of diluted earnings per share because the effect would have been anti-dilutive are as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Options in the money and
non-vested restricted share
awards |
| 1,910,291 | (1) | | | |||||||||||
Other options |
990,330 | 1,572,231 | 990,330 | 1,961,028 | ||||||||||||
Total anti-dilutive securities |
990,330 | 3,482,522 | 990,330 | 1,961,028 | ||||||||||||
(1) | The Company cannot include potentially dilutive common shares in the
computation of any diluted per-share amount when a loss from continuing operations
exists. If the Company had not recorded a loss from continuing operations in the
second quarter of 2009, 505,322 dilutive shares would have been included in diluted
earnings per share. |
7
Table of Contents
5 Stock Options and Restricted Stock Awards
Valuation and Expense Information
The Company accounts for stock-based compensation in accordance with Accounting Standards
Codification (ASC) 718-10, Compensation Stock Compensation, which requires the
measurement and recognition of compensation expense for all share-based payment awards made to
the Companys employees and directors including employee stock options, restricted share
awards and employee stock purchases related to the Employee Stock Purchase Plan based on
estimated fair values. During the three months ended June 30, 2010, the Company granted stock
awards to directors as authorized by the Rush Enterprises, Inc. Amended and Restated 2006
Non-Employee Director Stock Plan. Stock-based compensation expense, calculated using the
Black-Scholes option-pricing model and included in selling, general and administrative
expense, was $1.0 million for the three months ended June 30, 2010, and $1.2 million for the
three months ended June 30, 2009. Stock-based compensation expense, included in selling,
general and administrative expense, for the six months ended June 30, 2010, was $2.9 million
and for the six months ended June 30, 2009, was $2.5 million. As of June 30, 2010, there was
$6.3 million of total unrecognized compensation cost related to non-vested share-based
compensation arrangements to be recognized over a weighted-average period of 3.3 years.
6 Investments
The Company assesses its investments for impairment on a quarterly basis. If the
investments are deemed to be impaired, the Company determines whether the impairment is
temporary or other than temporary. If the impairment is deemed to be temporary, the Company
records an unrealized loss in other comprehensive income. If the impairment is deemed other
than temporary, the Company records the impairment in the Companys consolidated statement of
operations.
The Company historically invested in interest-bearing short-term investments primarily
consisting of investment-grade auction rate securities classified as available-for-sale and
reported at fair value. These types of investments were designed to provide liquidity through
an auction process that reset the applicable interest rates at predetermined periods ranging
from 1 to 35 days. This reset mechanism was intended to allow existing investors to continue
to own their respective interest in the auction rate security or to gain immediate liquidity
by selling their interests at par.
As a result of the liquidity issues experienced in the global capital markets, auctions
for investment grade securities held by the Company have failed. An auction fails when there
is insufficient demand. However, a failed auction does not represent a default by the issuer.
The auction rate securities continue to pay interest in accordance with the terms of the
underlying security; however, liquidity will be limited until there is a successful auction or
until such time as other markets for these investments develop. The Company has the intent
and ability to hold these auction rate securities until liquidity returns to the market. The
Company does not believe that the lack of liquidity relating to its auction rate securities
will have a material impact on its ability to fund operations.
As of June 30, 2010 and June 30, 2009, the Company held $7.6 million of auction rate
securities with underlying tax-exempt municipal bonds with stated maturities of 21 years.
These bonds have credit wrap insurance and a credit rating of A by Standard & Poors.
The Company believes that the credit quality and fair value of the auction rate
securities it holds has not been negatively impacted; therefore, no impairment charges have
been recorded as of June 30, 2010. As of June 30, 2010, the Company has valued these
investments at fair value, which approximates cost. The Company used observable inputs to
determine fair value, including consideration of broker quotes, the overall quality of the
underlying municipality, the credit quality of the insurance company, as well as successful
subsequent auctions. Accordingly, the Company has considered this fair value to be a Level 2
valuation under ASC 820-10, Fair Value Measurements and Disclosures. If the credit quality
of these investments deteriorates, or adverse developments occur in the bond insurance market,
the Company may be required to record an impairment charge on these investments in the future.
7 Inventory
During the quarter ended June 30, 2009, the Company recorded a net inventory write-down
of $3.4 million on new medium-duty GMC trucks and a net write-down of $0.6 million on its GMC
parts inventory due to General Motors decision to discontinue manufacturing GMC medium-duty
trucks and to wind-down the Companys medium-duty GMC truck franchise agreements. See Note 11
for further discussion of the wind-down of the Companys medium-duty GMC truck franchise
agreements.
8
Table of Contents
8 Segment Information
The Company currently has one reportable business segment, the Truck segment. The Truck
segment operates a network of Rush Truck Centers that provide an integrated one-stop source
for the trucking needs of its customers, including retail sales of new and used commercial
vehicles; aftermarket parts, service and body shop facilities; and a wide array of financial
services, including the financing of new and used commercial vehicle purchases, insurance
products and truck leasing and rentals. The truck centers are deemed as a single reporting
unit because they have similar economic characteristics. The Companys chief operating
decision maker considers the entire Truck segment, not individual dealerships when making
decisions about resources to be allocated to the segment and assess its performance.
The Construction Equipment segment will no longer be reported as a separate business
segment due to the Companys decision to sell its John Deere construction equipment business.
See Note 13 for further discussion of the sale of the construction equipment business. The
assets of the construction equipment business have been included in the All Other segment
assets in the table below.
The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based on income before
income taxes not including extraordinary items.
The Company accounts for intersegment sales and transfers as if the sales or transfers
were to third parties, that is, at current market prices. There were no material intersegment
sales during the quarters ended June 30, 2010 and 2009.
The Companys reportable segment is a strategic business unit that offers different
products and services. It is managed separately because the business unit requires different
technology and marketing strategies. Business units were maintained through expansion and
acquisitions. The following table contains summarized information about reportable segment
profit or loss and segment assets for the periods ended June 30, 2010 and 2009 (in thousands):
Truck | ||||||||||||
Segment | All Other | Totals | ||||||||||
As of and for the three months ended June 30, 2010 |
||||||||||||
Revenues from external customers |
$ | 325,673 | $ | 4,166 | $ | 329,839 | ||||||
Segment income from continuing operations before taxes |
8,857 | 108 | 8,965 | |||||||||
Segment assets |
1,049,053 | 53,480 | 1,102,533 | |||||||||
As of and for the six months ended June 30, 2010 |
||||||||||||
Revenues from external customers |
$ | 621,431 | $ | 7,696 | $ | 629,127 | ||||||
Segment income (loss) from continuing operations
before taxes |
12,347 | (311 | ) | 12,036 | ||||||||
As of and for the three months ended June 30, 2009 |
||||||||||||
Revenues from external customers |
$ | 298,266 | $ | 4,305 | $ | 302,571 | ||||||
Segment (loss) from continuing operations before taxes |
(3,838 | ) | (396 | ) | (4,234 | ) | ||||||
Segment assets |
907,990 | 57,488 | 965,478 | |||||||||
As of and for the six months ended June 30, 2009 |
||||||||||||
Revenues from external customers |
$ | 611,510 | $ | 8,552 | $ | 620,062 | ||||||
Segment (loss) from continuing operations before taxes |
(125 | ) | (872 | ) | (997 | ) |
Revenues from segments below the quantitative thresholds are attributable to three
operating segments of the Company. Those segments include a tire retailing company, an
insurance company and a guest ranch operation. None of those segments has ever met any of the
quantitative thresholds for determining reportable segments.
9 Income Taxes
The Company included accruals for unrecognized income tax benefits totaling $1.8 million
as a component of accrued liabilities as of June 30, 2010 and December 31, 2009. The
unrecognized tax benefits of $1.8 million at June 30, 2010, if recognized, would impact the
Companys effective tax rate. An unfavorable settlement would require a charge to income tax
expense and a favorable resolution would be recognized as a reduction to income tax expense.
As of June 30,
2010, the Company accrued interest of $135,000 related to unrecognized tax benefits in
the current provision for income taxes. No amounts were accrued for penalties.
9
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The Company does not anticipate a significant change in the amount of unrecognized tax
benefits in the next 12 months. As of June 30, 2010, the tax years ended December 31, 2008
through 2009 remained subject to audit by federal tax authorities and the tax years ended
December 31, 2005 through 2009, remained subject to audit by state tax authorities.
10 Fair Value of Financial Instruments
Certain methods and assumptions were used by the Company in estimating the fair value of
financial instruments at June 30, 2010. The carrying value of current assets and current
liabilities approximates the fair value due to the short maturity of these items.
The fair value of the Companys long-term debt is based on secondary market indicators.
Since the Companys debt is not quoted, estimates are based on each obligations
characteristics, including remaining maturities, interest rate, credit rating, collateral,
amortization schedule and liquidity. The carrying amount approximates fair value.
11 Medium-Duty GMC Truck Franchises
During the second quarter of 2009, General Motors made the decision to terminate its
medium-duty GMC truck production and wind-down the Companys medium-duty GMC truck franchises,
which forced the Company to take a $6.7 million pre-tax asset impairment charge. The
impairment charge was offset by $1.8 million in assistance from General Motors. This
impairment charge resulted in a net charge to cost of sales of $4.0 million, a net charge to
SG&A expense of $0.1 million and a charge to amortization expense of $0.8 million during the
second quarter of 2009. During the third and fourth quarters of 2009, the Company adjusted
the estimated impairment charge related to the medium-duty GMC truck and parts inventories,
which resulted in a net credit to cost of sales of $1.9 million.
12 Acquisition
On May 24, 2010, the Company acquired certain assets of Lake City Companies, LLC and
certain of its subsidiaries and affiliates (collectively, Lake City International). Lake
City International operated a commercial truck and bus sales, service, parts, finance and
leasing business representing multiple brands. The newly acquired dealerships include five
locations in Utah, five locations in Idaho and one location in Oregon. These locations are
operating as Rush Truck Centers that offer a combination of International heavy- and
medium-duty trucks, Autocar trucks, Mitsubishi Fuso medium-duty trucks, IC buses and Workhorse
chassis in addition to parts, service, body shop, financing and insurance capabilities.
Rush Truck Leasing will operate Idealease truck rental and leasing franchises at existing
locations in Salt Lake City, Utah, and Boise, Idaho. The transaction, including the real
estate, was valued at approximately $70.0 million. The purchase price for the assets of the
business was paid in cash and the purchase price for the real estate was partially paid in
cash with the remainder financed with long-term debt.
The operations of Lake City International are included in the accompanying consolidated
financial statements from the date of the acquisition. Pro forma information is not included
in accordance with ASC topic 805. The preliminary purchase price has been allocated based on
the fair values of the assets at the date of acquisition as follows (in thousands):
Prepaid expenses |
$ | 205 | ||
Accounts and notes receivable |
5,955 | |||
Inventories |
10,722 | |||
Property and equipment, including real estate |
47,802 | |||
Other assets |
309 | |||
Accounts payable |
(175 | ) | ||
Accrued expenses |
(3,555 | ) | ||
Floor plan notes payable |
(275 | ) | ||
Notes payable |
(178 | ) | ||
Goodwill |
9,164 | |||
Total |
$ | 69,974 | ||
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As the value of certain assets and liabilities are preliminary in nature, they are subject
to adjustment as additional information is obtained about the facts and circumstances that
existed at the acquisition date. When the valuation is final, any changes to the preliminary
valuation of acquired assets and liabilities could result in adjustments to identified
intangibles and goodwill. The Company financed approximately $37.5 million of the purchase
price under its floor plan, accounts receivable, lease and
rental truck financing arrangements and a real estate loan. As part of the Lake
City International acquisition, the Company assumed certain contingent liabilities for notes
initiated on behalf of Lake City International related to the sale of commercial vehicles. The
contingent liability had an estimated fair value of $2.0 million and was recorded as an accrued
liability.
The portion of goodwill related to the asset purchase of Lake City International will be
capitalized and subject to impairment review on at least an annual basis. For federal tax
purposes the goodwill will be amortized over 15 years. The above acquisition of Lake City
International was considered a business combination accounted for under ASC topic 805.
13 Discontinued Operations
On June 18, 2010, the Company announced that it had entered into a definitive agreement
to sell the assets of its John Deere construction equipment business, including its Rush
Equipment Centers in Houston and Beaumont, Texas, to Doggett Heavy Machinery Services, LLC.
The total purchase price for the Rush Equipment Centers is estimated to be approximately $37.0
million. The transaction, which is subject to customary closing conditions, is expected to
close in the third or fourth quarter of 2010. The Company expects to record a gain on the
transaction during the third or fourth quarter of 2010. As a result of these actions, the
Construction Equipment segment will no longer be reported as a separate business segment.
At closing, Doggett Heavy Machinery Services, LLC will enter into a lease agreement with
Rush Equipment Centers of Texas, Inc. to lease the facility where Rush Equipment Center,
Houston is located from an affiliate of the Company. The lease provides for an initial three
year term with the option for lessee to terminate the lease with 30 days notice. The
Companys continuing involvement in the operations of the construction equipment business is
limited to the lease agreement and will not be significant.
The results of operations of the construction equipment business have been classified as
discontinued operations in the Companys consolidated statements of operations for all periods
presented, and excluded from business segment information. Similarly, certain assets of the
construction equipment business have been separately identified in the consolidated balance
sheet as being held for sale.
Net sales and earnings before income taxes related to the discontinued business were as
follows (in thousands):
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net Sales |
$ | 9,102 | $ | 9,557 | $ | 18,210 | $ | 21,152 | ||||||||
Earnings before income taxes: |
||||||||||||||||
Results of operations from
discontinued operations before
income taxes |
469 | 276 | 1,012 | 1,141 | ||||||||||||
Income tax (expense) |
(197 | ) | (108 | ) | (425 | ) | (445 | ) | ||||||||
Net income from discontinued operations |
$ | 272 | $ | 168 | $ | 587 | $ | 696 | ||||||||
The major classes of assets of the discontinued operations classified as held for sale and
included in the consolidated balance sheet were as follows (in thousands):
2010 | 2009 | |||||||
Inventories |
$ | 19,168 | $ | 17,736 | ||||
Goodwill |
4,075 | 4,075 | ||||||
Property and equipment, net |
683 | 908 | ||||||
Prepaid expenses |
3 | | ||||||
Assets held for sale |
$ | 23,929 | $ | 22,719 | ||||
11
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Certain statements contained in this Form 10-Q (or otherwise made by the Company or on
the Companys behalf from time to time in other reports, filings with the Securities and
Exchange Commission, news releases, conferences, website postings or otherwise) that are not
statements of historical fact constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of
1934, as amended(the Exchange Act), notwithstanding that such statements are not
specifically identified. Forward-looking statements include statements about the Companys
financial position, business strategy and plans and objectives of management of the Company
for future operations. These forward-looking statements reflect the best judgments of the
Company about the future events and trends based on the beliefs of the Companys management as
well as assumptions made by and information currently available to the Companys management.
Use of 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 but are not the exclusive means of identifying such statements.
Forward-looking statements reflect the current view of the Company with respect to future
events and are subject to risks and uncertainties that could cause actual results to differ
materially from those in such statements. Important factors that could cause actual results to
differ materially from those in the forward-looking statements include, but are not limited
to, those set forth under Item 1ARisk Factors in the Companys Annual Report on Form 10-K
for the year ended December 31, 2009 as well as 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, market conditions in the new and used commercial
vehicle and equipment markets, customer relations, relationships with vendors, approval by
John Deere of the disposition of Rush Equipment Centers, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks, product
introductions and acceptance, technological change, changes in industry practices, one-time
events and other factors described herein and in the Companys 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. 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. All forward-looking statements speak only as
the date on which they are made and the Company undertakes no duty to update or revise any
forward-looking statements.
The following comments should be read in conjunction with the Companys consolidated
financial statements and related notes included elsewhere in this Quarterly Report on Form
10-Q.
Note Regarding Trademarks Used in This Form 10-Q
Peterbilt® is a registered trademark of Peterbilt Motors Company.
PACCAR® is a registered trademark of PACCAR, Inc. GMC® is a registered
trademark of General Motors Corporation. Hino® is a registered trademark of Hino
Motors, Ltd. UD® is a registered trademark of UD Truck North America, Ltd.
Isuzu® is a registered trademark of Isuzu Motors Limited. John Deere® is
a registered trademark of Deere & Company. Kenworth® is a registered trademark of
PACCAR, Inc. doing business as Kenworth Truck Company. Volvo® is a registered
trademark of Volvo Trademark Holding AB. Freightliner® is a registered trademark of
Freightliner Corporation. Mack® is a registered trademark of Mack Trucks, Inc.
Navistar® is a registered trademark of Navistar International Corporation.
Caterpillar® is a registered trademark of Caterpillar, Inc. PacLease® is
a registered trademark of PACCAR Leasing Corporation. CitiCapital® is a registered
trademark of Citicorp. Ford® is a registered trademark of Ford Motor Company.
Cummins® is a registered trademark of Cummins Intellectual Property, Inc.
Eaton® is a registered trademark of Eaton Corporation. Arvin Meritor®
is a registered trademark of Meritor Technology, Inc. Case® is a
registered trademark of Case Corporation. Komatsu® is a registered trademark of
Kabushiki Kaisha Komatsu Seisakusho Corporation Japan. The CIT Group® is a
registered trademark of CIT Group Holdings, Inc. JPMorgan Chase® is a registered
trademark of JP Morgan Chase & Co. SAP® is a registered trademark of SAP
Aktiengesellschaft. International® is a registered trademark of Navistar
International Transportation Corp. Blue Bird® is a registered trademark of Blue
Bird Investment Corporation. Autocar® is a registered trademark of Shem, LLC. IC
Bus® is a registered trademark of IC Bus, LLC. Collins Bus Corporation®
is a registered trademark of Collins Bus Corporation. Fuso® is a registered
trademark of Mitsubishi Fuso Truck and Bus Corporation. Workhorse® is a registered
trademark of Workhorse Custom Chassis, LLC.
General
Rush Enterprises, Inc. was incorporated in 1965 under the laws of the State of Texas.
The Company operates a Truck segment and conducts business through numerous subsidiaries, all
of which it wholly owns, directly or indirectly. Its principal offices are located at 555 IH
35 South, New Braunfels, Texas 78130.
12
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The Company is a full-service, integrated retailer of premium transportation and
construction equipment and related services. The Truck segment operates a regional network of
Rush Truck Centers. Rush Truck Centers primarily sell commercial vehicles manufactured by
Peterbilt, International, Hino, UD, Ford, Isuzu, Mitsubishi Fuso, IC Bus or Blue Bird.
Through its strategically located network of Rush Truck Centers, the Company provides one-stop
service for the needs of its customers, including retail sales of new and used commercial
vehicles, aftermarket parts sales, service and repair facilities, and financing, leasing and
rental, and insurance products.
The Companys Rush Truck Centers are principally located in high traffic areas throughout
the southern United States. Since commencing operations as a Peterbilt heavy-duty truck
dealer in 1966, the Company has grown to operate more than 60 Rush Truck Centers in Alabama,
Arizona, California, Colorado, Florida, Georgia, Idaho, New Mexico, North Carolina, Oklahoma,
Oregon, Tennessee, Texas and Utah.
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 as we extend our geographic
focus through strategic acquisitions of new locations and expansions of our existing
facilities and product lines.
The Construction Equipment segment will no longer be reported as a separate business
segment due to the Companys decision to sell its John Deere construction equipment business.
Critical Accounting Policies and Estimates
The Companys discussion and analysis of its financial condition and results of
operations are based on the Companys consolidated financial statements, which have been
prepared in accordance with United States 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. Actual results may differ from those estimates. The Company believes the
following accounting policies 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 of new and used commercial vehicles and construction equipment
inventory and by the first-in, first-out method for tires, parts and accessories. As the
market value of our inventory typically declines over time, reserves are established based on
historical loss experience and market trends. These reserves are charged to cost of sales and
reduce the carrying value of our inventory on hand. An allowance is provided when it is
anticipated that cost will exceed net realizable value plus a reasonable profit margin.
Goodwill
Goodwill and other intangible assets that have indefinite lives are not amortized but
instead are tested at least annually by reporting unit for impairment, or more frequently when
events or changes in circumstances indicate that the asset might be impaired.
Goodwill is reviewed for impairment utilizing a two-step process. The first step
requires the Company to compare the fair value of the reporting unit, which is the same as the
segment, to the respective carrying value. The Company considers each of its segments to be a
reporting unit for purposes of this analysis. If the fair value of the reporting unit exceeds
its carrying value, the goodwill is not considered impaired. If the carrying value is greater
than the fair value, there is an indication that an impairment may exist and a second step is
required. In the second step of the analysis, the implied fair value of the goodwill is
calculated as the excess of the fair value of a reporting unit over the fair values assigned
to its assets and liabilities. If the implied fair value of goodwill is less than the
carrying value of the reporting units goodwill, the difference is recognized as an impairment
loss.
The Company determines the fair value of its reporting units using the discounted cash
flow method. The discounted cash flow method uses various assumptions and estimates regarding
revenue growth rates, future gross margins, future selling, general and administrative
expenses and an estimated weighted average cost of capital. The analysis is based upon
available information regarding expected future cash flows of each reporting unit discounted
at rates consistent with the cost of capital specific to the reporting unit. This type of
analysis contains uncertainties because it requires the Company to make assumptions and to
apply judgment regarding its knowledge of its industry, information provided by industry
analysts, and its current business strategy in light of present industry and economic
conditions. If any of these assumptions change, or
fails to materialize, the resulting decline in its estimated fair value could result in a
material impairment charge to the goodwill associated with the reporting unit.
13
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The Company performs an annual impairment review of goodwill during the fourth quarter of
each year. Management is not aware of any impairment charge that may currently be required;
however, a change in economic conditions, if one occurs, could result in an impairment charge
in future periods.
The Company does not believe there is a reasonable likelihood that there will be a
material change in the future estimates or assumptions it used to test for impairment losses
on goodwill. However, if actual results are not consistent with our estimates or assumptions,
or certain events occur that might adversely affect the reported value of goodwill in the
future, the Company may be exposed to an impairment charge that could be material. Such
events may include, but are not limited to, strategic decisions made in response to economic
and competitive conditions or the impact of the current economic environment.
Finance and Insurance Revenue Recognition
Finance income related to the sale of a unit is recognized when the finance contract is
sold to a finance company. The Company arranges financing for customers through various
institutions and receives financing fees from the lender equal to either the difference
between the interest rates charged to customers over the predetermined interest rates set by
the financing institution or a commission for the placement of contracts. The Company also
receives commissions from the sale of various insurance products to customers.
The Company may be charged back for unearned financing or insurance contract fees in the
event of early termination of the contracts by customers. In the case of finance contracts, a
customer may prepay, or fail to pay, thereby terminating the underlying contract. Revenues
from these fees are recorded at the time of the sale of a unit and a reserve for future
amounts which might be charged back is established based on historical chargeback results and
the termination provisions of the applicable contracts, including the impact of refinance and
default rates on retail finance contracts and cancellation rates on other insurance products.
The Companys finance and insurance revenue recognition accounting methodology contains
uncertainties because it requires management to make assumptions and to apply judgment to
estimate future charge-backs. The Companys estimate of future charge-backs is based
primarily on historical experience. The actual amount of historical charge-backs has not been
significantly different than the Companys estimates.
Insurance Accruals
The Company is partially self-insured for a portion of the claims related to its property
and casualty insurance programs, requiring it to make estimates regarding expected losses to
be incurred. The Company engages a third party administrator to assess any open claims and
the Company adjusts its accrual accordingly on an annual basis. The Company is also partially
self-insured for a portion of the claims related to its workers compensation and medical
insurance programs. The Company uses actuarial information provided from third party
administrators to calculate an accrual for claims incurred, but not reported, and for the
remaining portion of claims that have been reported.
Changes in the frequency, severity, and development of existing claims could influence
the Companys reserve for claims and financial position, results of operations and cash flows.
The Company does not believe there is a reasonable likelihood that there will be a material
change in the estimates or assumptions it used to calculate its self-insured liabilities.
However, if actual results are not consistent with our estimates or assumptions, the Company
may be exposed to losses or gains that could be material.
Accounting for Income Taxes
Significant management judgment is required to determine the provisions for income taxes
and to determine whether deferred tax assets will be realized in full or in part. Deferred
income tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered
or settled. When it is more likely than not that all or some portion of specific deferred
income tax assets will not be realized, a valuation allowance must be established for the
amount of deferred income tax assets that are determined not to be realizable. Accordingly,
the facts and financial circumstances impacting state deferred income tax assets are reviewed
quarterly and managements judgment is applied to determine the amount of valuation allowance
required, if any, in any given period.
The Companys income tax returns are periodically audited by tax authorities. These
audits include questions regarding our tax filing positions, including the timing and amount
of deductions. In evaluating the exposures associated with the Companys various tax filing
positions, the Company adjusts its liability for unrecognized tax benefits and income
tax provision in the period in which an uncertain tax position is effectively settled, the
statute of limitations expires for the relevant taxing authority to examine the tax position,
or when more information becomes available.
14
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The Companys liability for unrecognized tax benefits contains uncertainties because
management is required to make assumptions and to apply judgment to estimate the exposures
associated with its various filing positions. The Companys effective income tax rate is also
affected by changes in tax law, the level of earnings and the results of tax audits. Although
the Company believes that the judgments and estimates are reasonable, actual results could
differ, and the Company may be exposed to losses or gains that could be material. An
unfavorable tax settlement generally would require use of the Companys cash and result in an
increase in its effective income tax rate in the period of resolution. A favorable tax
settlement would be recognized as a reduction in the Companys effective income tax rate in
the period of resolution. The Companys income tax expense includes the impact of reserve
provisions and changes to reserves that it considers appropriate, as well as related interest.
Stock-Based Compensation Expense
The Company applies the provisions of ASC 718-10, Compensation Stock Compensation,
which requires the measurement and recognition of compensation expense for all share-based
payment awards made to employees and directors including grants of employee stock options and
restricted stock and employee stock purchases under the Employee Stock Purchase Plan based on
estimated fair values.
The Company uses the Black-Scholes option-pricing model to estimate the fair value of
share-based payment awards on the date of grant. The value of the portion of the award that
is ultimately expected to vest is recognized as expense over the requisite service periods in
the Companys Consolidated Statement of Operations.
15
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Results of Operations
The following discussion and analysis includes the Companys historical results of
operations for the three months and six months ended June 30, 2010 and 2009.
The following table sets forth for the periods indicated certain financial data as a
percentage of total revenues:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
New and used truck sales |
58.0 | % | 61.9 | % | 59.1 | % | 61.8 | % | ||||||||
Parts and service |
36.0 | 32.6 | 35.0 | 32.8 | ||||||||||||
Construction equipment sales |
| | | | ||||||||||||
Lease and rental |
4.9 | 4.4 | 4.8 | 4.3 | ||||||||||||
Finance and insurance |
0.6 | 0.7 | 0.6 | 0.6 | ||||||||||||
Other |
0.5 | 0.4 | 0.5 | 0.5 | ||||||||||||
Total revenues |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost of products sold |
79.0 | 83.3 | 79.8 | 82.4 | ||||||||||||
Gross profit |
21.0 | 16.7 | 20.2 | 17.6 | ||||||||||||
Selling, general and administrative |
16.8 | 16.1 | 16.7 | 15.9 | ||||||||||||
Depreciation and amortization |
1.1 | 1.5 | 1.1 | 1.4 | ||||||||||||
Gain on sale of assets |
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
Operating income |
3.1 | (0.9 | ) | 2.4 | 0.3 | |||||||||||
Interest expense, net |
0.4 | 0.5 | 0.4 | 0.5 | ||||||||||||
Income from continuing operations before income taxes |
2.7 | (1.4 | ) | 2.0 | (0.2 | ) | ||||||||||
Provision for income taxes |
1.1 | (0.8 | ) | 0.8 | (0.3 | ) | ||||||||||
Income from continuing operations |
1.6 | (0.6 | ) | 1.2 | 0.1 | |||||||||||
Income from discontinued operations |
0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||
Net income |
1.7 | % | (0.5 | )% | 1.3 | % | 0.2 | % | ||||||||
The following table sets forth the unit sales and revenue for new heavy-duty, new
medium-duty and used trucks and the absorption rate for the periods indicated (revenue in
millions):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | % | June 30, | % | |||||||||||||||||||||
2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
Truck unit sales: |
||||||||||||||||||||||||
New heavy-duty trucks |
813 | 954 | (14.8 | %) | 1,782 | 1,986 | (10.3 | %) | ||||||||||||||||
New medium-duty trucks |
828 | 638 | 29.8 | % | 1,439 | 1,392 | 3.4 | % | ||||||||||||||||
Total new truck unit sales |
1,641 | 1,592 | 3.1 | % | 3,221 | 3,378 | (4.6 | %) | ||||||||||||||||
Used truck unit sales |
889 | 776 | 14.6 | % | 1,575 | 1,353 | 16.4 | % | ||||||||||||||||
Truck revenue: |
||||||||||||||||||||||||
New heavy-duty trucks |
$ | 104.7 | $ | 116.3 | (10.0 | %) | $ | 222.9 | $ | 240.3 | (7.2 | %) | ||||||||||||
New medium-duty trucks |
50.3 | 40.7 | 23.6 | % | 87.7 | 89.5 | (2.0 | %) | ||||||||||||||||
Total new truck revenue |
$ | 155.0 | $ | 157.0 | (1.3 | %) | $ | 310.6 | $ | 329.8 | (5.8 | %) | ||||||||||||
Used truck revenue |
$ | 35.5 | $ | 29.8 | 19.1 | % | $ | 60.1 | $ | 52.5 | 14.5 | % | ||||||||||||
Other revenue:(1) |
$ | 0.8 | $ | 0.3 | 166.7 | % | $ | 1.2 | $ | 0.8 | 50.0 | % | ||||||||||||
Absorption rate: |
104.3 | % | 95.2 | % | 9.6 | % | 100.8 | % | 96.2 | % | 4.8 | % |
(1) | Includes sales of truck bodies, trailers and other new equipment. |
16
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Key Performance Indicator
Absorption Rate
Management uses several performance metrics to evaluate the performance of its commercial
vehicle dealerships, and considers Rush Truck Centers absorption rate to be of critical
importance. Absorption rate is calculated by dividing the gross profit from the parts,
service and body shop departments by the overhead expenses of all of a dealerships
departments, except for the selling expenses of the new and used commercial vehicle
departments and carrying costs of new and used commercial vehicle inventory. When 100%
absorption is achieved, then gross profit from the sale of a commercial vehicle, after sales
commissions and inventory carrying costs, directly impacts operating profit. In 1999, the
Companys truck dealerships absorption rate was approximately 80%. The Company has made a
concerted effort to increase its absorption rate since 1999. The Companys truck dealerships
achieved a 104.3% absorption rate for the second quarter of 2010 and 95.2% absorption rate for
the second quarter in 2009.
Three Months Ended June 30, 2010, Compared to Three Months Ended June 30, 2009
As expected, retail sales of new heavy- and medium-duty trucks remained sluggish
throughout the second quarter, as fleets remain hesitant to take delivery of new trucks.
Additionally, higher priced 2010 emissions-compliant engines are now the only engines
available in most new trucks, and demand is limited as few fleets want to be among the first
to adopt the new technology. The used truck market continued to improve in the second quarter
due to an undersupply of used trucks as a result of depressed new truck sales in recent years.
Truck dealership parts, service and body shop operations have accelerated, with revenues
increasing in the second quarter of 2010 by 21.1% compared to the second quarter of 2009. The
Company expects parts, service and body shop operations to remain at current levels throughout
the year. According to A.C.T. Research Co., LLC (A.C.T. Research), a truck industry data
and forecasting service provider, the average age of truck fleets remains the highest in
history. Because of the aging fleet, the Company believes that the demand for maintenance
will remain strong.
The Company and industry analysts expect a strong recovery in commercial vehicle retail
sales in 2011, 2012 and 2013. A.C.T. Research currently predicts U.S. retail sales of Class 8
trucks of approximately 108,300 units in 2010, an 11.7% increase from the number of deliveries
in 2009, and 178,000 units in 2011. A.C.T. Research currently predicts U.S. retail sales of
Class 4, 5, 6, and 7 medium-duty commercial vehicles of approximately 115,500 units in 2010, a
3.7% increase from the number of deliveries in 2009, and 144,000 units in 2011.
As excess truck capacity and freight demand have equalized, more trucks have been put
into service, which is increasing the need for maintenance and repair. The Company is
optimistic that the increase in our parts and service operations is an indicator that a
sustainable recovery has begun and should continue throughout the year. The Company believes
that overall parts, service and body shop revenues should remain at the same levels seen in
the second quarter throughout the remainder of 2010.
On June 18, 2010, the Company announced that it entered into a definitive agreement to
sell the assets of its John Deere construction equipment business, including its Rush
Equipment Centers in Houston and Beaumont, Texas, to Doggett Heavy Machinery Services, LLC.
The total purchase price for the Rush Equipment Centers is estimated to be approximately $37.0
million. The transaction, which is subject to customary closing conditions, including
approval by John Deere, is expected to close in the third or fourth quarter of 2010. As a
result of this announcement, the results of the Companys construction equipment business are
being reported as income from discontinued operations.
The Company previously announced that on May 24, 2010 it acquired certain assets of Lake
City International. Lake City International operated a commercial truck and bus sales,
service, parts, finance and leasing business representing multiple brands. The acquisition
expanded the Companys contiguous network of Rush Truck Centers to 60 locations in 14 states.
The newly acquired dealerships include five locations in Utah, five locations in Idaho and one
location in Oregon. These locations are operating as Rush Truck Centers that offer a
combination of International heavy- and medium-duty trucks, Autocar trucks, Mitsubishi Fuso
medium-duty trucks, IC buses and Workhorse chassis in addition to parts, service, body shop,
financing and insurance capabilities. Rush Truck Leasing will operate Idealease truck rental
and leasing franchises at existing locations in Salt Lake City, Utah, and Boise, Idaho.
During the second quarter of 2009, General Motors made the decision to terminate its
medium-duty GMC truck production and wind-down the Companys medium-duty GMC truck franchises,
which forced the Company to take a $6.7 million pre-tax asset impairment charge. The
impairment charge was offset by $1.8 million in assistance from General Motors, which was
recorded as a receivable from General Motors. This impairment charge resulted in a net charge
to cost of sales of $4.0 million, a net charge to SG&A expense of $0.1 million and a charge to
amortization expense of $0.8 million
during the second quarter of 2009. During the third and fourth quarters of 2009, the
Company adjusted the estimated impairment charge related to the medium-duty GMC truck and
parts inventories, which resulted in a net credit to cost of sales of $1.9 million.
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Revenues
Revenues increased $27.3 million, or 9.0%, in the second quarter of 2010, compared to the
second quarter of 2009. Sales of new and used trucks increased $4.2 million, or 2.2%, in the
second quarter of 2010, compared to the second quarter of 2009. General economic conditions,
the unavailability of credit to certain buyers and reluctance of fleets to purchase new diesel
engine technology continue to limit demand for new trucks.
The Company sold 813 heavy-duty trucks in the second quarter of 2010, a 14.8% decrease
compared to 954 heavy-duty trucks in the second quarter of 2009. According to A.C.T.
Research, the U.S. Class 8 truck market increased 10.0% in the second quarter of 2010 compared
to the second quarter of 2009. The Companys share of the U.S. Class 8 truck sales market was
approximately 4.1% in 2009. Some of the Companys fleet customers chose to delay purchases of
heavy-duty trucks, which contributed to the decrease in the Companys heavy-duty truck sales
during the second quarter of 2010 relative to 2009 and the overall market. The Company
expects its share to range between 3.7% and 4.1% of the U.S. Class 8 truck market in 2010,
which would result in the sale of approximately 4,000 to 4,400 Class 8 trucks based on current
U.S. retail sales estimates of 108,300 units.
The Company sold 828 medium-duty commercial vehicles, including 105 buses, in the second
quarter of 2010, a 29.8% increase compared to 638 medium-duty commercial vehicles in the
second quarter of 2009. A.C.T. Research estimates that unit sales of Class 4 through 7
commercial vehicles in the U.S. increased approximately 11.0% in the second quarter of 2010
compared to the second quarter of 2009. In 2009, the Company achieved a 2.4% share of the
Class 4 through 7 commercial vehicle sales market in the U.S. The Company expects its share
to range between 2.4% and 2.5% of the U.S. Class 4 through 7 commercial vehicle sales market
in 2010. This market share percentage would result in the sale of approximately 2,700 to
2,900 of Class 4 through 7 commercial vehicles in 2010 based on current U.S. retail sales
estimates of approximately 115,500 units.
The Company sold 889 used commercial vehicles in the second quarter of 2010, a 14.6%
increase compared to 776 used commercial vehicles in the second quarter of 2009. The Company
expects demand for used commercial vehicles to remain high in 2010, but sales will be largely
dependent upon our ability to acquire quality used trucks and maintain an adequate used truck
inventory. The Company expects to sell approximately 3,100 to 3,400 used commercial vehicles
in 2010.
Parts and service sales increased $19.8 million, or 20.1%, in the second quarter of 2010
compared to the second quarter of 2009. The Companys acquisition of Lake City International
contributed $3.9 million of the increase. The Company expects parts and service sales to
remain strong during the remainder of the year. As excess truck capacity equalizes with
freight demand, more trucks that had been put out of service are being put back into service
and trucks are driving more miles, which increases the need for maintenance and repair.
Truck lease and rental revenues increased $3.0 million, or 22.8%, in the second quarter
of 2010 compared to the second quarter of 2009. The Companys acquisition of Lake City
International contributed $1.0 million of the increase. The remainder of the increase in
lease and rental revenue is consistent with managements expectations, which are based upon
the increased number of units put into service in the lease and rental fleet during 2009 and
2010 and increasing rental fleet utilization. The Company expects lease and rental revenue to
increase 8% to 12% during 2010, compared to 2009 based on the increase of units in the lease
and rental fleet.
Finance and insurance revenues decreased $0.2 million, or 8.2%, in the second quarter of
2010 compared to the second quarter of 2009. The decrease in finance and insurance revenue is
a direct result of the decline in new Class 8 truck sales. The Company expects finance and
insurance revenue to fluctuate proportionately with the Companys new Class 8 truck sales in
2010. Finance and insurance revenues have limited direct costs and, therefore, contribute a
disproportionate share of the Companys operating profits.
Other income increased $0.5 million, or 36.5% in the second quarter of 2010 compared to
the second quarter of 2009. Other income consists primarily of the gain on sale realized on
trucks from the lease and rental fleet, document fees related to commercial vehicle sales,
mineral royalties and purchase discounts.
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Gross Profit
Gross profit increased $18.6 million, or 36.8%, in the second quarter of 2010 compared to
the second quarter of 2009. Gross profit as a percentage of sales increased to 21.0% in the
second quarter of 2010 from 16.7% in the second quarter of 2009. This increase in gross
profit as a percentage of sales is primarily a result of a change in our product sales mix.
Commercial vehicle sales, a lower margin revenue item, decreased as a percentage of total
revenue to 58.0% in 2010, from 61.9% in 2009. Parts and service revenue, a higher margin
revenue item, increased as a percentage of total revenue to 36.0% in 2010, from 32.6% in 2009.
Gross margins on Class 8 truck sales increased to 8.1% in the second quarter of 2010 from
5.1% in the second quarter of 2009. Gross margins on Class 8 truck sales during the second
quarter of 2010 increased relative to 2009 because of a customer mix that included fewer large
fleets. In 2010, the Company expects overall gross margins from Class 8 truck sales of
approximately 6.0% to 8.0%, depending upon the mix of customer base and products sold.
Gross margins on medium-duty commercial vehicle sales increased to 5.6% in the second
quarter of 2010 from (1.6%) in the second quarter of 2009. The gross margins during the
second quarter of 2009 were impacted by the write-down of new GMC medium-duty truck inventory
caused by General Motors decision to stop manufacturing GMC medium-duty trucks and wind-down
the Companys GMC medium-duty truck franchise agreements. Gross margins on medium-duty
commercial vehicles are difficult to forecast accurately because gross margins vary
significantly depending upon the mix of fleet and non-fleet purchasers and types of
medium-duty commercial vehicles sold. For 2010, the Company expects overall gross margins
from medium-duty commercial vehicle sales of approximately 5.0% to 7.0%, but this will largely
depend upon the mix of customer base and products sold.
Gross margins on used commercial vehicle sales increased to 14.7% in the second quarter
of 2010 from 6.7% in the second quarter of 2009. This increase was largely attributable to
increased demand for high quality used commercial vehicles due to the increased cost of new
2010 emission compliant commercial vehicles. The Company expects margins on used commercial
vehicles to return to historical margins of 8.0 to 10.0% in the third and fourth quarters of
2010, which will result in margins of approximately 8.5% to 11.5% for the year.
Gross margins from the Companys parts, service and body shop operations increased to
39.1% in the second quarter of 2010 from 38.6% in the second quarter of 2009. Gross profit
for the parts, service and body shop departments increased to $46.3 million in the second
quarter of 2010 from $38.1 million in the second quarter of 2009. The Company expects gross
margins on parts, service and body shop operations of approximately 38.0% to 40.0% during
2010.
Gross margins from truck lease and rental sales increased to 16.2% in the second quarter
of 2010 from approximately 12.4% in the second quarter of 2009. The increase in the gross
margin from lease and rental sales is primarily due to the increased utilization of trucks in
our rental fleet. The Company expects gross margins from lease and rental sales of
approximately 12.0% to 16.0% during 2010 primarily depending upon general economic conditions.
The Companys policy is to depreciate its lease and rental fleet using a straight line method
over the customers contractual lease term. The lease unit is depreciated to a residual value
that approximates fair value at the expiration of the lease term. This policy results in the
Company realizing reasonable gross margins while the unit is in service and a corresponding
gain or loss on sale when the unit is sold at the end of the lease term.
Finance and insurance revenues and other income, as described above, have limited direct
costs and, therefore, contribute a disproportionate share of gross profit.
Selling, General and Administrative Expenses
Selling, General and Administrative (SG&A) expenses increased $6.4 million, or 13.2%,
in the second quarter of 2010 compared to the second quarter of 2009. SG&A expenses as a
percentage of sales increased to 16.7% in the second quarter of 2010 from 16.1% in the second
quarter of 2009. Prior to 2009, SG&A expenses as a percentage of sales historically ranged
from 10.0% to 15.0%. In general, when new and used commercial vehicle revenue decreases as a
percentage of revenue, SG&A expenses as a percentage of revenue will be at, or exceed, the
higher end of this range. The Company earns federal income tax credits on the sale of
alternative fuel vehicles to tax-exempt entities. A portion of these tax credits are passed
back to the tax-exempt customer and are reflected as SG&A expense to the Company. In the
second quarter of 2010, the selling portion of SG&A expenses, which consists primarily of
commissions on commercial vehicle and construction equipment sales, increased 11.3% and the
general and administrative portion of SG&A expenses increased 13.3% compared to the second
quarter of 2009. For 2010, the Company expects the selling portion of SG&A expenses to be
approximately 25% to 28% of new and used commercial vehicle gross profit. The selling portion
of SG&A expenses varies
based on the gross profit derived from commercial vehicle sales. The Company expects SG&A
expenses as a percentage of sales to range from 15.5% to 17.0% for the remainder of 2010.
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Interest Expense, Net
Net interest expense remained relatively flat in the second quarter of 2010 compared to
the second quarter of 2009. The Company expects net interest expense for the remainder of
2010 to increase compared to 2009 based on anticipated increases in inventory levels and
impending modification to the Companys floor plan agreement in the second half of 2010, which
will likely result in increased floor plan interest.
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased $13.2 million in the
second quarter of 2010 compared to the second quarter of 2009, as a result of the factors
described above. During the second quarter of 2009, General Motors made the decision to
terminate its medium-duty GMC truck production and wind-down the Companys medium-duty GMC
truck franchises, which forced the Company to take a $6.7 million pre-tax asset impairment
charge. The Company believes that income before income taxes in 2010 will increase compared
to 2009 based on the factors described above.
Income Taxes
Income taxes increased $6.1 million in the second quarter of 2010 compared to the second
quarter of 2009. The Company provided for taxes at a 42.0% effective rate in the second
quarter of 2010 compared to an effective rate of 39.0% in the second quarter of 2009. Prior
to the application of alternative fuel tax credits, the Companys tax rate during the second
quarter of 2010 increased primarily due to state regulations that assess taxes based on gross
profit and non-deductible expenses. Historically, the Companys effective tax rate has been
approximately 36% to 38% of pretax income. When pretax income is low, state taxes that are
calculated based on gross profit and non-deductible expenses become a larger percentage of
pretax income, thereby increasing the Companys effective tax rate in relation to its
historical rates. If pretax income for 2010 is similar to pretax income in 2009, the Company
expects its effective tax rate to be approximately 40.0% to 42.0% before the application of
alternative fuel tax credits. In the second quarter of 2010, the Company received $0.2
million in tax credits for sales of alternative fuel vehicles to tax-exempt entities, compared
to $0.9 million in the second quarter of 2009. The Companys effective tax rate may vary
significantly depending on the number of alternative fuel vehicles sold to tax-exempt
entities.
Income from Discontinued Operations, net
Income from discontinued operations, net of income taxes increased to $0.3 million in the
second quarter of 2010 from $0.2 million in the second quarter of 2009. Income from
discontinued operations includes operating results for the Companys construction equipment
business.
Six Months Ended June 30, 2010, Compared to Six Months Ended June 30, 2009
Unless otherwise stated below, the Companys variance explanations and future
expectations with regard to the items discussed in this section are set forth in the
discussion of the Three Months Ended June 30, 2010, Compared to Three Months Ended June 30,
2009.
Revenues increased $9.1 million, or 1.5%, in the first six months of 2010, compared to
the first six months of 2009. Sales of new and used trucks decreased $11.2 million, or 2.9%,
in the first six months of 2010, compared to the first six months of 2009.
The Company sold 1,782 heavy-duty units in the first six months of 2010, a 10.3% decrease
compared to 1,986 heavy-duty trucks in the first six months of 2009. According to A.C.T.
Research, the U.S. Class 8 truck market increased 12.0% in the first six months of 2010,
compared to the first six months of 2009.
The Company sold 1,439 medium-duty commercial vehicles, including 202 buses, in the first
six months of 2010, a 3.4% increase compared to 1,392 medium-duty commercial vehicles in the
first six months of 2009. A.C.T. Research estimates that unit sales of Class 4 through 7
commercial vehicles in the U.S increased approximately 6.0% in the first six months of 2010,
compared to the first six months of 2009.
The Company sold 1,575 used commercial vehicles in the first six months of 2010, a 16.4%
increase compared to 1,353 used commercial vehicles in the first six months of 2009.
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Parts and service sales increased $16.9 million, or 8.3%, in the first six months of
2010, compared to the first six months of 2009.
Truck lease and rental revenues increased $3.6 million, or 13.4%, in the first six months
of 2010, compared to the first six months of 2009.
Finance and insurance revenues decreased $0.3 million, or 8.8%, in the first six months
of 2010, compared to the first six months of 2009.
Other income increased $0.2 million, or 5.8%, in the first six months of 2010, compared
to the first six months of 2009. Other income consists primarily of the gain on sale realized
on trucks from the lease and rental fleet, document fees related to commercial vehicle sales,
mineral royalties and purchase discounts.
Gross Profit
Gross profit increased $17.9 million, or 16.4%, in the first six months of 2010, compared
to the first six months of 2009. Gross profit as a percentage of sales increased to 20.2% in
the first six months of 2010 from 17.6% in the first six months of 2009.
Gross margins on Class 8 truck sales increased to 7.6% in the first six months of 2010,
from 6.1% in the first six months of 2009.
Gross margins on medium-duty truck sales increased to 5.9% in the first six months of
2010, from 2.8% in the first six months of 2009.
Gross margins on used truck sales increased to 14.3% in the first six months of 2010,
from 6.3% in the first six months of 2009.
Gross margins from the Companys parts, service and body shop operations remained flat at
38.8% in the first six months of 2010 and the first six months of 2009. Gross profit for the
parts, service and body shop departments was $85.5 million in the first six months of 2010,
compared to $78.9 million in the first six months of 2009.
Gross margins from truck lease and rental sales increased to 14.6% in the first six
months of 2010, from approximately 12.0% in the first six months of 2009.
Finance and insurance revenues and other income, as described above, has limited direct
costs and, therefore, contributes a disproportionate share of gross profit.
Selling, General and Administrative Expenses
SG&A expenses increased $6.4 million, or 6.4%, in the first six months of 2010, compared
to the first six months of 2009. SG&A expenses as a percentage of sales was 16.7% in the
first six months of 2010 and 16.0% in the first six months of 2009.
Interest Expense, Net
Net interest expense decreased $0.3 million, or 9.0%, in the first six months of 2010,
compared to the first six months of 2009.
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased $13.0 million in the
first six months of 2010, compared to the first six months of 2009.
Provision for Income Taxes
Income taxes increased $6.3 million in the first six months of 2010, compared to the
first six months of 2009. The Company provided for taxes at a 42.0% rate in the first six
months of 2010, compared to a rate of 39.0% in the first six
months of 2009. The tax rate in the first six months of 2010 was offset $0.4 million by
tax credits for sales of alternative fuel vehicles to tax-exempt entities.
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Income from Discontinued Operations, net
Income from discontinued operations, net of income taxes decreased to $0.6 million in the
second quarter of 2010 from $0.7 million in the second quarter of 2009. Income from
discontinued operations includes operating results for the Companys construction equipment
business.
Liquidity and Capital Resources
The Companys short-term cash requirements are primarily for working capital, inventory
financing, the improvement and expansion of existing facilities, the development and
implementation of SAP enterprise software and dealership management system, and the
construction of new facilities. Historically, these cash requirements have been met through
the retention of profits, borrowings under our floor plan arrangements and bank financings.
The Company does not expect the absence of cash flows from discontinued operations to
materially affect future liquidity and capital resources. As of June 30, 2010, the Company
had working capital of approximately $132.7 million, including $135.8 million in cash
available to fund our operations. The Company believes that these funds are sufficient to
meet its short-term and long-term cash requirements.
The Company has a secured line of credit that provides for a maximum borrowing of $8.0
million. There were no advances outstanding under this secured line of credit at June 30,
2010, however, $7.1 million was pledged to secure various letters of credit related to
self-insurance products, leaving $0.9 million available for future borrowings as of June 30,
2010.
The Companys long-term real estate debt agreements require the Company to satisfy
various financial ratios such as the debt to worth ratio and the fixed charge coverage ratio.
The Companys floor plan financing agreement with GE Capital does not contain financial
covenants. At June 30, 2010, the Company was in compliance with all debt covenants. The
Company does not anticipate any breach of the covenants in the foreseeable future.
Titan Technology Partners is currently implementing SAP enterprise software and a new SAP
dealership management system for the Company. The total cost of the SAP software and
implementation is estimated to be approximately $34.0 million. As of June 30, 2010, the
Company had cumulative expenditures of $31.7 million related to the SAP project. The Company
expects to spend approximately $1.5 million to $2.0 million related to the SAP project during
the remainder of 2010.
The Company also expects to make capital expenditures for recurring items such as
computers, shop tools and equipment and vehicles of approximately $6.0 million during the
remainder of 2010.
On July 22, 2008, the Companys Board of Directors approved a stock repurchase program
authorizing the Company to repurchase, from time to time, up to an aggregate of $20,000,000 of
its shares of Class A common stock and/or Class B common stock. Repurchases will be made at
times and in amounts as the Company deems appropriate and will be made through open market
transactions, privately negotiated transactions and other lawful means. The manner, timing and
amount of any repurchases will be determined by the Company based on an evaluation of market
conditions, stock price and other factors, including those related to the ownership
requirements of its dealership agreements with manufacturers it represents. The stock
repurchase program has no expiration date and may be suspended or discontinued at any time.
While the stock repurchase program does not obligate the Company to acquire any particular
amount or class of common stock, the Company anticipates that it will be repurchasing
primarily shares of its Class B common stock. As of June 30, 2010, the Company has
repurchased 1,639,843 shares of its Class B common stock at an aggregate cost of $17.9
million, none of which occurred during the second quarter of 2010.
The Company currently anticipates funding its capital expenditures relating to the
implementation of the SAP enterprise software and SAP dealership management system,
improvement and expansion of existing facilities, construction of new facilities, recurring
expenses and any stock repurchases through its operating cash flow. The Company expects to
finance 70% to 80% of the appraised value of any newly constructed or purchased facilities,
which will increase the Companys cash and cash equivalents by that amount.
On June 18, 2010, the Company announced that it had entered into a definitive agreement
to sell the assets of its John Deere construction equipment business, including its Rush
Equipment Centers in Houston and Beaumont, Texas, to Doggett Heavy Machinery Services, LLC.
The total purchase price for the Rush Equipment Centers is estimated to be approximately $37.0
million. The transaction, which is subject to customary closing conditions, is expected to
close in the
third or fourth quarter of 2010. The Company expects to receive cash of approximately
$13.5 to $14.0 million at closing and approximately $4.75 million over four years.
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The Company has no other material commitments for capital expenditures as of June 30,
2010, except that the Company will continue to purchase vehicles for its lease and rental
division and authorize capital expenditures for improvement and expansion of its existing
dealership facilities and construction of new facilities based on market opportunities. The
Company expects to purchase or lease trucks worth approximately $35.0 million for its leasing
operations in 2010, depending on customer demand, all of which will be financed.
Cash Flows
Cash and cash equivalents decreased by $13.3 million during the six months ended June 30,
2010, and decreased by $25.5 million during the six months ended June 30, 2009. The major
components of these changes are discussed below. Cash flows from discontinued operations are
included in the components of the statement of cash flows as described below.
Cash Flows from Operating Activities
Cash flows from operating activities include net income adjusted for non-cash items and
the effects of changes in working capital. During the second quarter of 2010, operating
activities resulted in net cash provided by operations of $5.5 million. Cash provided by
operating activities was primarily impacted by the increase in inventories and accounts
receivable which was offset by the increase in accounts payable and accrued expenses. During
the first six months of 2009, operating activities resulted in net cash provided by operations
of $78.0 million. Cash provided by operating activities was primarily impacted by the
decrease in receivables and inventories which was offset by the decrease in accounts payable
and accrued expenses.
Cash flows from operating activities as adjusted for all draws and (payments) on floor
plan notes (Adjusted Cash Flows from Operating Activities) was $50.0 million for the six
months ended June 30, 2010, and $14.0 million for the six months ended June 30, 2009.
Generally, all vehicle and construction equipment dealers finance the purchase of vehicles and
construction equipment with floor plan borrowings, and our agreements with our floor plan
providers require us to repay amounts borrowed for the purchase of such vehicles and equipment
immediately after they are sold. As a result, changes in floor plan notes payable are
directly linked to changes in vehicle and construction equipment inventory. However, as
reflected in our consolidated statements of cash flows, changes in inventory are recorded as
cash flows from operating activities, and draws and (payments) on floor plan notes are
recorded as cash flows from financing activities.
Management believes that information about Adjusted Cash Flows from Operating Activities
provides investors with a relevant measure of liquidity and a useful basis for assessing the
Companys ability to fund its activities and obligations from operating activities. Floor
plan notes payable is classified as a current liability and, therefore, is included in the
working capital amounts discussed above.
Adjusted Cash Flows from Operating Activities is a non-GAAP financial measure and should
be considered in addition to, and not as a substitute for, cash flows from operating
activities as reported in our consolidated statements of cash flows in accordance with U.S.
GAAP. Additionally, this measure may vary among other companies; thus, Adjusted Cash Flows
from Operating Activities as presented herein may not be comparable to similarly titled
non-GAAP financial measures of other companies. Set forth below is a reconciliation of cash
flow from operating activities as reported in our consolidated statement of cash flows, as if
all changes in floor plan notes payable were classified as an operating activity (in
thousands).
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Net cash provided by operating activities (GAAP) |
$ | 5,486 | $ | 77,995 | ||||
(Draws) payments on floor plan notes payable |
44,504 | (64,022 | ) | |||||
Adjusted Cash Flows from Operating Activities (Non-GAAP) |
$ | 49,990 | $ | 13,973 | ||||
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Cash Flows from Investing Activities
Cash flows used in investing activities consist primarily of cash used for capital
expenditures and business acquisitions. During the first six months of 2010, cash used in
investing activities was $62.9 million. Capital expenditures consisted of purchases of
property and equipment and improvements to our existing dealership facilities of $28.6
million. Property and equipment purchases during the first six months of 2010 consisted of
$17.9 million for additional units for
rental and leasing operations, which was directly offset by borrowings of long-term debt. The
Company expects to purchase or lease trucks worth approximately $35.0 million for its leasing
operations in 2010, depending on customer demand, all of which will be financed. Cash used in
business acquisitions was $32.5 million during the first six months of 2010 (See Note 12 -
Acquisitions of Notes to Consolidated Financial Statements). During the remainder of 2010,
the Company expects to make capital expenditures for recurring items such as computers, shop
equipment and vehicles of approximately $6.0 million, in addition to $1.5 million to $2.0
million for the SAP project described above.
During the first six months of 2009, cash used in investing activities was $23.4 million.
Capital expenditures consisted of purchases of property and equipment, improvements to our
existing dealership facilities and construction of our new facility in Oklahoma City, Oklahoma
of $23.5 million. Property and equipment purchases during the first six months of 2009
consisted of $6.0 million for additional units for the rental and leasing operations, which
was directly offset by borrowings of long-term debt.
Cash Flows from Financing Activities
Cash flows from financing activities include borrowings and repayments of long-term debt
and net proceeds of floor plan notes payable. Cash provided by financing activities was $44.1
million during the first six months of 2010. The Company had borrowings of long-term debt of
$26.9 million and repayments of long-term debt of $24.8 million during the first six months of
2010. The Company had net draws on floor plan notes payable of $44.5 million during the first
six months of 2010. The borrowings of long-term debt were primarily related to units for the
rental and leasing operations.
Cash used in financing activities was $80.1 million during the first six months of 2009.
The Company had borrowings of long-term debt of $6.1 million and repayments of long-term debt
of $20.6 million during the first six months of 2009. The Company had net payments of floor
plan notes payable of $64.0 million during the first six months of 2009. The borrowings of
long-term debt were primarily related to units for the rental and leasing operations.
Substantially all of the Companys commercial vehicle purchases are made on terms
requiring payment within 15 days or less from the date the commercial vehicles are invoiced
from the factory. Effective August 1, 2007, the Company entered into an Amended and Restated
Wholesale Security Agreement with GE Capital. Interest under the floor plan financing
agreement is payable monthly and the rate varies from LIBOR plus 1.15% to LIBOR plus 1.50%
depending on the month-end average aggregate amount outstanding under our GE Capital floor
plan arrangement. The Company finances substantially all of the purchase price of its new
commercial vehicle inventory, and the loan value of its used commercial vehicle inventory
under the floor plan financing agreement with GE Capital, under which GE Capital pays the
manufacturer directly with respect to new commercial vehicles. The Company makes monthly
interest payments to GE Capital on the amount financed, but is not required to commence loan
principal repayments on any vehicle until such vehicle has been floor planned for 12 months or
is sold. The floor plan financing agreement allows for prepayments with monthly adjustments
to the interest due on outstanding advances. On June 30, 2010, the Company had approximately
$222.0 million outstanding under its floor plan financing agreement with GE Capital. In
connection with the Amended and Restated Wholesale Agreement with GE Capital, the Company
executed a Continuing Guaranty in favor of GE Capital to a maximum principal amount of $600
million, plus unpaid interest and reasonable costs of collection. Except for the procedures
and other terms and conditions set forth in the Amended and Restated Wholesale Agreement, the
Company is not aware of any limitation on the Companys ability to access capital through this
facility.
Substantially all of the Companys new construction equipment purchases are financed by
John Deere and JPMorgan Chase (Chase). The agreement with John Deere provides for interest
at prime plus 1.5%, however, there is 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 finance period, the Company is required to repay the
principal within approximately ten days of the sale. If the construction equipment financed by
John Deere is not sold within the interest free finance period, the Company transfers the
financed equipment to the Chase floor plan arrangement. New and used construction equipment
is financed to a maximum of book value under a floor plan arrangement with Chase. The Company
makes monthly interest payments on the amount financed and is required to commence loan
principal repayments on construction equipment as book value is reduced. Principal payments
for sold new and used construction equipment are made to Chase no later than the
15th day of each month following the sale. The loans are collateralized by a lien
on the construction equipment. As of June 30, 2010, the Companys floor plan arrangement with
Chase permitted the financing of up to $20.0 million in construction equipment. The facility
with Chase expires in September 2010 and the interest rate is the prime rate less 0.65%. On
June 30, 2010, the Company had $2.6 million outstanding under its floor plan financing
arrangements with John Deere and $14.0 million outstanding under its floor plan financing
arrangement with Chase.
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Backlog
On June 30, 2010, the Companys backlog of truck orders was approximately $154.4 million
as compared to a backlog of truck orders of approximately $116.6 million on June 30, 2009. The
Company includes only confirmed orders in its backlog. The delivery time for a custom-ordered
commercial vehicle varies depending on the truck specifications and demand for the particular
model ordered, however, the Company expects to fill all of its backlog orders during 2010.
The Company sells the majority of its new commercial vehicles by customer special order, with
the remainder sold out of inventory. Orders from a number of the Companys major fleet
customers are included in the Companys backlog as of June 30, 2010.
Seasonality
The Companys Truck segment is moderately seasonal. Seasonal effects on new commercial
vehicle sales related to the seasonal purchasing patterns of any single customer type are
mitigated by the diverse geographic locations of our dealerships and the Companys diverse
customer base, including regional and national fleets, local governments, corporations and
owner operators. However, commercial vehicle parts and service operations historically have
experienced higher sales volumes in the second and third quarters.
Cyclicality
The Companys business is dependent on a number of factors relating to general economic
conditions, including fuel prices, interest rate fluctuations, credit availability, economic
recessions, environmental and other government regulations and customer business cycles. Unit
sales of new commercial vehicles have historically been subject to substantial cyclical
variation based on these general economic conditions. According to data published by A.C.T.
Research, in recent years total U.S. retail sales of new Class 8 trucks have ranged from a low
of approximately 97,000 in 2009 to a high of approximately 291,000 in 2006. Through
geographic expansion, concentration on higher margin parts and service operations and
diversification of its customer base, the Company believes it has reduced the negative impact
on the Companys earnings of adverse general economic conditions or cyclical trends affecting
the heavy-duty truck industry.
Environmental Standards and Other Governmental Regulations
The Company is subject to a wide range of federal, state and local environmental laws and
regulations, including those governing discharges into the air and water; the operation and
removal of underground and aboveground storage tanks; the use, handling, storage and disposal
of hazardous substances, petroleum and other materials; and the investigation and remediation
of contamination. As with commercial vehicle or construction equipment dealerships generally,
and service, parts and body shop operations in particular, our business involves the
generation, use, storage, handling and contracting for recycling or disposal of hazardous
materials or wastes and other environmentally sensitive materials. The Company has incurred,
and will continue to incur, capital and operating expenditures and other costs in complying
with such laws and regulations.
Our operations involving the management of hazardous and nonhazardous materials are
subject to the requirements of the federal Resource Conservation and Recovery Act, or RCRA,
and comparable state statutes. Pursuant to these laws, federal and state environmental
agencies have established approved methods for handling, storage, treatment, transportation
and disposal of regulated substances and wastes with which the Company must comply. Our
business also involves the operation and use of above ground and underground storage tanks.
These storage tanks are subject to periodic testing, containment, upgrading and removal under
RCRA and comparable state statutes. Furthermore, investigation or remediation may be
necessary in the event of leaks or other discharges from current or former underground or
aboveground storage tanks.
The Company may also have liability in connection with materials that were sent to
third-party recycling, treatment, or disposal facilities under the federal Comprehensive
Environmental Response, Compensation and Liability Act, or CERCLA, and comparable state
statutes. These statutes impose liability for investigation and remediation of contamination
without regard to fault or the legality of the conduct that contributed to the contamination.
Responsible parties under these statutes may include the owner or operator of the site where
contamination occurred and companies that disposed or arranged for the disposal of the
hazardous substances released at these sites. These responsible parties also may be liable
for damages to natural resources. In addition, it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage allegedly
caused by the release of hazardous substances or other pollutants into the environment.
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The federal Clean Water Act and comparable state statutes prohibit discharges of
pollutants into regulated waters without the necessary permits, require containment of
potential discharges of oil or hazardous substances, and require
preparation of spill contingency plans. Water quality protection programs govern certain
discharges from some of our operations. Similarly, the federal Clean Air Act and comparable
state statutes regulate emissions of various air pollutants through air emissions permitting
programs and the imposition of other requirements. In addition, the U.S. Environmental
Protection Agency, or EPA, has developed, and continues to develop, stringent regulations
governing emissions of toxic air pollutants from specified sources. For example, EPA
emissions guidelines regarding nitrous oxides recently came into effect for all diesel engines
built subsequent to January 1, 2010, which could adversely affect demand for our products and
services, which may in turn adversely affect our future results of operations.
The Company believes that it does not currently have any material environmental
liabilities and that compliance with environmental laws and regulations will not, individually
or in the aggregate, have a material adverse effect on our results of operations, financial
condition or cash flows. However, soil and groundwater contamination is known to exist at
some of our current properties. Further, environmental laws and regulations are complex and
subject to change. In addition, in connection with acquisitions, it is possible that the
Company will assume or become subject to new or unforeseen environmental costs or liabilities,
some of which may be material. In connection with our dispositions, or prior dispositions made
by companies acquire, the Company may retain exposure for environmental costs and liabilities,
some of which may be material. Compliance with current or amended, or new or more stringent,
laws or regulations, stricter interpretations of existing laws or the future discovery of
environmental conditions could require additional expenditures by us, and those expenditures
could be material.
It is not possible at this time to predict how legislation or new regulations that may be
adopted to address greenhouse gas emissions would impact our business. Any such future laws
and regulations could result in increased compliance costs, additional operating restrictions
or changes in demand for our products and services which could have a material adverse effect
on our business, financial condition and results of operation.
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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk represents the risk of loss that may impact the financial position, results
of operations, or cash flows of the Company due to adverse changes in financial market prices,
including interest rate risk, and other relevant market rate or price risks.
The Company is exposed to some market risk through interest rates related to our floor
plan financing agreements, variable rate real estate debt and discount rates related to
finance sales. The majority of floor plan debt and variable rate real estate debt is based on
LIBOR. As of June 30, 2010, the Company had floor plan borrowings and variable rate real
estate debt of approximately $309.0 million. Assuming an increase or decrease in LIBOR of 100
basis points, annual interest expense could correspondingly increase or decrease by
approximately $3.1 million. The Company provides all customer financing opportunities to
various finance providers. The Company receives all finance charges in excess of a negotiated
discount rate from the finance providers in the month following the date of the financing. The
negotiated discount rate is variable, thus subject to interest rate fluctuations. This
interest rate risk is mitigated by the Companys ability to pass discount rate increases to
customers through higher financing rates.
The Company is also exposed to some market risk through interest rates related to the
investment of our current cash and cash equivalents which totaled $135.8 million on June 30,
2010. These funds are generally invested in variable interest rate instruments in accordance
with the Companys investment policy. As such instruments mature and the funds are
reinvested, we are exposed to changes in market interest rates. This risk is mitigated by
managements ongoing evaluation of the best investment rates available for current and
noncurrent high quality investments. If market interest rates were to increase or decrease
immediately and uniformly by 100 basis points, the Companys annual interest income could
correspondingly increase or decrease by approximately $1.4 million.
In the past, the Company invested in interest-bearing short-term investments consisting
of investment-grade auction rate securities classified as available-for-sale. As a result of
the recent liquidity issues experienced in the global credit and capital markets, auctions for
investment grade securities held by the Company have failed. The auction rate securities
continue to pay interest in accordance with the terms of the underlying security; however,
liquidity will be limited until there is a successful auction or until such time as other
markets for these investments develop.
As of June 30, 2010, the Company holds $7.6 million of auction rate securities with
underlying tax-exempt municipal bonds with stated maturities of 21 years. Given the current
market conditions in the auction rate securities market, if the Company determines that the
fair value of these securities has temporarily decreased by 10%, the Companys equity could
correspondingly decrease by approximately $0.8 million. If it is determined that the fair
value of these securities is other-than-temporarily impaired by 10%, the Company could record
a loss on its Consolidated Statements of Operations of approximately $0.8 million. For
further discussion of the risks related to our auction rate securities, see Note 6
Investments of the Notes to Consolidated Financial Statements.
The Company has not used derivative financial instruments in our investment portfolio.
ITEM 4. Controls and Procedures.
The Company, under the supervision and with the participation of management, including
the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
Companys disclosure controls and procedures as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures were effective as of June 30,
2010 to ensure that information required to be disclosed in the reports filed or submitted
under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions rules and forms,
and (ii) is accumulated and communicated to Company management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
There has been no change in the Companys internal control over financial reporting that
occurred during the three months ended June 30, 2010 that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over financial
reporting.
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Table of Contents
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
From time to time, we are involved in litigation arising out of the Companys 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 the Companys financial condition or results of operations. We
believe that there are no claims or litigation pending, the outcome of which could have a
material adverse effect on the Companys financial position or results of operations. However,
due to the inherent uncertainty of litigation, there can be no assurance that the resolution
of any particular claim or proceeding would not have a material adverse effect on the
Companys financial condition or results of operations for the fiscal period in which such
resolution occurred.
ITEM 1A. Risk Factors.
While we attempt to identify, manage and mitigate risks and uncertainties associated with
our business to the extent practical under the circumstances, some level of risk and
uncertainty will always be present. Item 1A, Part I of our 2009 Annual Report on Form 10-K
(the 2009 Annual Report) describes some of the risks and uncertainties associated with our
business that have the potential to materially affect our business, financial condition or
results of operations.
There has been no material change in our risk factors disclosed in the 2009 Annual
Report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Company did not make any unregistered sales of equity securities during the second
quarter of 2010.
The Company did not repurchase any shares of its Class A Common Stock or Class B Common
Stock during the second quarter of 2010.
Total Number of | Maximum Number | |||||||||||||||
Shares | (or Approximate | |||||||||||||||
Purchased as | Dollar Value) of | |||||||||||||||
Total | Average | Part of Publicly | Shares that May | |||||||||||||
Number of | Price | Announced | Yet Be Purchased | |||||||||||||
Shares | Paid Per | Plans or | Under the Plans or | |||||||||||||
Period | Purchased | Share | Programs | Programs (1)(2) | ||||||||||||
April 1 - 30, 2010 |
| $ | 0.00 | | $ | 2,093,321 | ||||||||||
May 1 - 31, 2010 |
| 0.00 | | 2,093,321 | ||||||||||||
June 1 - 30, 2010 |
| 0.00 | | 2,093,321 | ||||||||||||
2nd Quarter Total |
| $ | 0.00 | | $ | 2,093,321 |
(1) | On July 22, 2008, the Companys Board of Directors approved a stock repurchase program
authorizing the Company to repurchase, from time to time, up to an aggregate of $20,000,000 of
its shares of Class A Common Stock and/or Class B Common Stock. The stock repurchase program
has no expiration date and may be suspended or discontinued at any time. |
|
(2) | As of June 30, 2010, the Company has repurchased 1,639,843 shares of its Class B common
stock at a cost of $17.9 million, none of which occurred during the second quarter of 2010. |
ITEM 3. Defaults Upon Senior Securities.
Not Applicable
ITEM 5. Other Information.
Not Applicable
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ITEM 6. Exhibits.
Exhibit | ||
Number | Exhibit Title | |
2.1
|
Amendment #1, dated as of May 24, 2010, to Asset Purchase
Agreement, dated March 19, 2010 (incorporated herein by
reference to Exhibit 2.1 of the Companys Current Report on
Form 8-K (File No. 000-20797) filed May 26, 2010) |
|
3.1
|
Restated Articles of Incorporation of Rush Enterprises,
Inc. (incorporated herein by reference to Exhibit 3.1 of
the Companys Quarterly Report on Form 10-Q (File No.
000-20797) for the quarter ended June 30, 2008) |
|
3.2
|
Rush Enterprises, Inc. Amended and Restated Bylaws
(incorporated herein by reference to Exhibit 3.1 of the
Companys Current Report on Form 8-K (File No. 000-20797)
filed December 9, 2008) |
|
10.1
|
Amended and Restated Rush Enterprises, Inc. 2007 Long-Term
Incentive Plan (incorporated herein by reference to the
Companys Definitive Proxy Statement on Schedule 14A, filed
with the Securities and Exchange Commission on April 6,
2010) |
|
10.2
|
Amended and Restated 2006 Non-Employee Director Stock Plan,
as amended (incorporated by reference to Exhibit 10.2 of
the Companys Current Report on Form 8-K (File No.
000-20797) filed May 21, 2010) |
|
31.1*
|
Certification of CEO pursuant to Rules 13a-14(a) and
15d-14(a) adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
31.2*
|
Certification of CFO pursuant to Rules 13a-14(a) and
15d-14(a) adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
32.1**
|
Certification of CEO pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
32.2**
|
Certification of CFO pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
* | filed herewith |
|
** | furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
RUSH ENTERPRISES, INC. |
||||
Date: August 9, 2010 | By: | /S/ W.M. RUSTY RUSH | ||
W.M. Rusty Rush | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
Date: August 9, 2010 | By: | /S/ STEVEN L. KELLER | ||
Steven L. Keller | ||||
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
Exhibit | ||
Number | Exhibit Title | |
31.1*
|
Certification of CEO pursuant to Rules 13a-14(a) and 15d-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2*
|
Certification of CFO pursuant to Rules 13a-14(a) and 15d-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1**
|
Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2**
|
Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | filed herewith |
|
** | furnished herewith |
31