Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

| **x**  | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------|---------------------------------------------------------------------------------------------------------|
|   |                                                                                                    |
|   | **For the quarterly period ended June 30, 2009**                                                   |
|   |                                                                                                    |
|   | **OR**                                                                                                  |
|   |                                                                                                    |
| **o**  | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from                 to                **

 

**Commissionfile number 0-20797**

 

**RUSHENTERPRISES, INC.**

(Exactname 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**

**NewBraunfels, Texas 78130**

(Addressof principal executive offices)

(ZipCode)

 

**(830)626-5200**

(Registrant’stelephone number, including area code)

 

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

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                  |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o  No x

 

Indicated below is the numberof shares outstanding of each of the issuer’s classes of common stock, as of August 3,2009.

 

| ** **                                 | ** ** | **Number of** |
|--------------------------------------------|------------|--------------------|
| ** **                                 | ** ** | **Shares**         |
| **Title of Class**               | ** ** | **Outstanding**    |
| Class A  Common Stock, $.01 Par Value |       | 26,377,848         |
| Class B  Common Stock, $.01 Par Value |       | 10,685,894         |

 

 

 

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Table of Contents

 

###### **RUSH ENTERPRISES,INC. AND SUBSIDIARIES**

 

**INDEX**

 
| ** **                              | ** **                                                                                                                  | ** ** | **Page** |
|-----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|------------|----------|
|                                    |                                                                                                                        |       |     |
| **PART I.  FINANCIAL INFORMATION** |                                                                                                                        |       |
|                                    |                                                                                                                        |       |     |
| Item 1.                                 | Financial Statements                                                                                                        |       |     |
|                                    |                                                                                                                        |       |     |
|                                    | Consolidated  Balance Sheets - June 30, 2009 (unaudited) and December 31, 2008                                    |       | 3        |
|                                    |                                                                                                                        |       |     |
|                                    | Consolidated  Statements of Operations - For the Three Months and Six Months Ended  June 30, 2009 and 2008 (unaudited) |       | 4        |
|                                    |                                                                                                                        |       |     |
|                                    | Consolidated  Statements of Cash Flows - For the Six Months Ended June 30, 2009 and  2008 (unaudited)                  |       | 5        |
|                                    |                                                                                                                        |       |     |
|                                    | Notes to Consolidated Financial Statements (unaudited)                                                                      |       | 6        |
|                                    |                                                                                                                        |       |     |
| Item  2.                                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                 |       | 11       |
|                                    |                                                                                                                        |       |     |
| Item  3.                                | Quantitative  and Qualitative Disclosures about Market Risk                                                                 |       | 24       |
|                                    |                                                                                                                        |       |     |
| Item 4.                                 | Controls and  Procedures                                                                                                    |       | 24       |
|                                    |                                                                                                                        |       |     |
| **PART II.  OTHER INFORMATION**    |                                                                                                                        |       |
|                                    |                                                                                                                        |       |     |
| Item 1.                                 | Legal Proceedings                                                                                                           |       | 25       |
|                                    |                                                                                                                        |       |     |
| Item 1A.                                | Risk Factors                                                                                                                |       | 25       |
|                                    |                                                                                                                        |       |     |
| Item  2.                                | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                |       | 25       |
|                                    |                                                                                                                        |       |     |
| Item  3.                                | Defaults Upon  Senior Securities                                                                                            |       | 25       |
|                                    |                                                                                                                        |       |     |
| Item 4.                                 | Submission of  Matters to a Vote of Security Holders                                                                        |       | 26       |
|                                    |                                                                                                                        |       |     |
| Item 5.                                 | Other Information                                                                                                           |       | 26       |
|                                    |                                                                                                                        |       |     |
| Item 6.                                 | Exhibits                                                                                                                    |       | 27       |
|                                    |                                                                                                                        |       |     |
| **SIGNATURES**                          |                                                                                                                        | 28         |

 

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#### **PART I.FINANCIAL INFORMATION**

 

**ITEM 1. Financial Statements.**

#### ** **

#### **RUSH ENTERPRISES, INC. AND SUBSIDIARIES**

### **CONSOLIDATED BALANCE SHEETS**

# **JUNE 30, 2009 ANDDECEMBER 31, 2008**

**(In Thousands, Except Shares)**

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                                                                                                                                                                                                                                                                            |       |              |       |                  |       |
| Current assets:                                                                                                                                                                                                                                                                                                                                                                                                       |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                                                                                                                                                            |       | $                 | 120,951    |                  | $          | 146,411 |   |
| Investments                                                                                                                                                                                                                                                                                                                                                                                                           |       | 7,575             |       | 7,575                 |       |
| Accounts  receivable, net                                                                                                                                                                                                                                                                                                                                                                                             |       | 49,098            |       | 55,274                |       |
| Inventories                                                                                                                                                                                                                                                                                                                                                                                                           |       | 298,031           |       | 362,234               |       |
| Prepaid expenses  and other                                                                                                                                                                                                                                                                                                                                                                                           |       | 2,350             |       | 3,369                 |       |
| Deferred income  taxes, net                                                                                                                                                                                                                                                                                                                                                                                           |       | 9,495             |       | 6,730                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |       |              |       |                  |       |
| Total current  assets                                                                                                                                                                                                                                                                                                                                                                                                 |       | 487,500           |       | 581,593               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** |              |       |                  |       |
| Property and  equipment, net                                                                                                                                                                                                                                                                                                                                                                                          |       | 335,832           |       | 332,147               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** |              |       |                  |       |
| Goodwill, net                                                                                                                                                                                                                                                                                                                                                                                                         |       | 141,066           |       | 141,904               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |       |              |       |                  |       |
| Other assets,  net                                                                                                                                                                                                                                                                                                                                                                                                    |       | 1,080             |       | 1,146                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** |              |       |                  |       |
| **Total  assets**                                                                                                                                                                                                                                                                                                                                                                                                     |       | $                 | 965,478    |                  | $          | 1,056,790 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |       |              |       |                  |       |
| **Liabilities  and shareholders’ equity**                                                                                                                                                                                                                                                                                                                                                                        |       |              |       |                  |       |
| Current  liabilities:                                                                                                                                                                                                                                                                                                                                                                                                 |       |              |       |                  |       |
| Floor plan notes  payable                                                                                                                                                                                                                                                                                                                                                                                             |       | $                 | 218,680    |                  | $          | 282,702 |   |
| Current  maturities of long-term debt                                                                                                                                                                                                                                                                                                                                                                                 |       | 43,361            |       | 37,665                |       |
| Current  maturities of capital lease obligations                                                                                                                                                                                                                                                                                                                                                                      |       | 4,092             |       | 3,454                 |       |
| Trade accounts  payable                                                                                                                                                                                                                                                                                                                                                                                               |       | 23,424            |       | 31,530                |       |
| Accrued expenses                                                                                                                                                                                                                                                                                                                                                                                                      |       | 37,457            |       | 49,125                |       |
| Total current  liabilities                                                                                                                                                                                                                                                                                                                                                                                            |       | 327,014           |       | 404,476               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |       |              |       |                  |       |
| Long-term debt,  net of current maturities                                                                                                                                                                                                                                                                                                                                                                            |       | 151,902           |       | 172,011               |       |
| Capital lease  obligations, net of current maturities                                                                                                                                                                                                                                                                                                                                                                 |       | 14,751            |       | 11,366                |       |
| Deferred income  taxes, net                                                                                                                                                                                                                                                                                                                                                                                           |       | 51,357            |       | 52,896                |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |       |              |       |                  |       |
| Shareholders’  equity:                                                                                                                                                                                                                                                                                                                                                                                           |       |              |       |                  |       |
| Preferred stock,  par value $.01 per share; 1,000,000 shares authorized; 0 shares outstanding  in 2009 and 2008                                                                                                                                                                                                                                                                                                       |       | —            |       | —                |       |
| Common stock,  par value $.01 per share; 60,000,000 class A shares and 20,000,000 class  B shares authorized; 26,526,474 class A shares and 12,325,737 class B shares  issued and 26,377,848 class A shares and 10,685,894 class B shares  outstanding in 2009; 26,327,734 class A shares and 12,324,987 class B shares  issued and 26,255,974 class A shares and 10,685,144 class B shares  outstanding in 2008 |       | 387               |       | 386                   |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                                                                                                                                                           |       | 186,888           |       | 183,818               |       |
| Treasury stock,  at cost: 1,639,843 shares                                                                                                                                                                                                                                                                                                                                                                            |       | (17,948           | )          | (17,948               | )          |
| Retained  earnings                                                                                                                                                                                                                                                                                                                                                                                                    |       | 251,127           |       | 249,785               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |       |              |       |                  |       |
| Total shareholders’ equity                                                                                                                                                                                                                                                                                                                                                                                       |       | 420,454           |       | 416,041               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |       |              |       |                  |       |
| **Total  liabilities and shareholders’ equity**                                                                                                                                                                                                                                                                                                                                                                  |       | $                 | 965,478    |                  | $          | 1,056,790 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

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**RUSH ENTERPRISES, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(In Thousands, Except Per Share Amounts)**

**(Unaudited)**

** **
| ** **                                | ** ** | **Three Months Ended********June 30,** | ** ** | **Six Months Ended********June 30,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                | ** ** | **2009**                                    | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| **Revenues:**                             |       |                                        |       |                                      |       |   |   |   |   |
| New and used  truck sales                 |       | $                                           | 187,154    |                                      | $          | 297,237 |   | $ | 383,142 |   | $ | 548,663 |   |
| Parts and  service                        |       | 102,712                                     |       | 120,465                                   |       | 211,930 |   | 238,045 |   |
| Construction  equipment sales             |       | 5,481                                       |       | 18,960                                    |       | 12,484 |   | 35,899 |   |
| Lease and rental                          |       | 13,236                                      |       | 13,376                                    |       | 26,712 |   | 26,400 |   |
| Finance and  insurance                    |       | 2,268                                       |       | 3,193                                     |       | 3,983 |   | 6,797 |   |
| Other                                     |       | 1,277                                       |       | 1,487                                     |       | 2,963 |   | 2,772 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| Total revenue                             |       | 312,128                                     |       | 454,718                                   |       | 641,214 |   | 858,576 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| **Cost of  products sold**:               |       |                                        |       |                                      |       |   |   |   |   |
| New and used  truck sales                 |       | 179,846                                     |       | 281,305                                   |       | 362,673 |   | 512,342 |   |
| Parts and  service                        |       | 62,775                                      |       | 69,989                                    |       | 129,224 |   | 138,629 |   |
| Construction  equipment sales             |       | 5,200                                       |       | 17,192                                    |       | 11,382 |   | 32,372 |   |
| Lease and rental                          |       | 11,589                                      |       | 11,819                                    |       | 23,517 |   | 22,641 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| Total cost of  products sold              |       | 259,410                                     |       | 380,305                                   |       | 526,796 |   | 705,984 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| **Gross  profit**                         |       | 52,718                                      |       | 74,413                                    |       | 114,418 |   | 152,592 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| Selling, general  and administrative      |       | 50,378                                      |       | 59,012                                    |       | 102,429 |   | 115,957 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| Depreciation and  amortization            |       | 4,813                                       |       | 3,927                                     |       | 8,791 |   | 7,802 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| **Operating  (loss) income**              |       | (2,473                                      | )          | 11,474                                    |       | 3,198 |   | 28,833 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| Interest  expense, net                    |       | 1,507                                       |       | 1,773                                     |       | 3,131 |   | 3,700 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| Gain on sale of  assets                   |       | 22                                          |       | 5                                         |       | 77 |   | 54 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| **(Loss)  income before taxes**           |       | (3,958                                      | )          | 9,706                                     |       | 144 |   | 25,187 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| (Benefit)  provision for income taxes     |       | (2,437                                      | )          | 3,639                                     |       | (1,198 | ) | 9,445 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| **Net (loss) income**                     |       | $                                           | (1,521     | )                                         | $          | 6,067 |   | $ | 1,342 |   | $ | 15,742 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| **(Loss)  earnings per common share:**    |       |                                        |       |                                      |       |   |   |   |   |
| Basic                                     |       | $                                           | (.04       | )                                         | $          | .16 |   | $ | .04 |   | $ | .41 |   |
| Diluted                                   |       | $                                           | (.04       | )                                         | $          | .16 |   | $ | .04 |   | $ | .40 |   |
|                                      |       |                                        |       |                                      |       |   |   |   |   |
| **Weighted  average shares outstanding:** |       |                                        |       |                                      |       |   |   |   |   |
| Basic                                     |       | 37,039                                      |       | 38,458                                    |       | 37,015 |   | 38,415 |   |
| Diluted                                   |       | 37,039                                      |       | 38,971                                    |       | 37,389 |   | 38,951 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

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**RUSH ENTERPRISES, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(In Thousands)**

**(Unaudited)**

** **
| ** **                                                                                        | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                        | ** ** | **June 30,**    | ** ** |
| ** **                                                                                        | ** ** | **2009**             | ** ** | **2008** | ** ** |
|                                                                                              |       |                 |       |   |   |
| **Cash flows from operating activities:**                                                         |       |                 |       |   |   |
| Net income                                                                                        |       | $                    | 1,342      |   | $ | 15,742 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:                |       |                 |       |   |   |
| Depreciation and amortization                                                                     |       | 20,824               |       | 18,602 |   |
| (Gain) on sale of property and equipment                                                          |       | (77                  | )          | (54 | ) |
| Stock-based compensation expense related to stock options and  employee stock purchases           |       | 2,481                |       | 2,440 |   |
| Provision (benefit) for deferred income tax expense                                               |       | (4,304               | )          | 4,247 |   |
| Excess tax benefits from stock-based compensation                                                 |       | (206                 | )          | (677 | ) |
| Change in accounts receivable, net                                                                |       | 6,176                |       | (1,988 | ) |
| Change in inventories                                                                             |       | 70,308               |       | 22,623 |   |
| Change in prepaid expenses and other, net                                                         |       | 1,019                |       | (568 | ) |
| Change in trade accounts payable                                                                  |       | (8,106               | )          | (6,873 | ) |
| Change in accrued expenses                                                                        |       | (11,462              | )          | (15,977 | ) |
|                                                                                              |       |                 |       |   |   |
| Net cash provided by operating activities                                                         |       | 77,995               |       | 37,517 |   |
|                                                                                              |       |                 |       |   |   |
| **Cash flows from investing activities:**                                                         |       |                 |       |   |   |
| Purchase of investments                                                                           |       | —               |       | (355,575 | ) |
| Proceeds from the sale of investments                                                             |       | —               |       | 348,000 |   |
| Acquisition of property and equipment                                                             |       | (23,513              | )          | (21,049 | ) |
| Proceeds from the sale of property and equipment                                                  |       | 132                  |       | 203 |   |
| Business acquisitions                                                                             |       | —               |       | (37,387 | ) |
| Change in other assets                                                                            |       | 5                    |       | 32 |   |
|                                                                                              |       |                 |       |   |   |
| Net cash (used in) investing activities                                                           |       | (23,376              | )          | (65,776 | ) |
|                                                                                              |       |                 |       |   |   |
| **Cash flows from financing activities:**                                                         |       |                 |       |   |   |
| Draws (payments) on floor plan notes payable, net                                                 |       | (64,022              | )          | 8,387 |   |
| Proceeds from long-term debt                                                                      |       | 6,137                |       | 11,740 |   |
| Principal payments on long-term debt                                                              |       | (20,550              | )          | (19,590 | ) |
| Principal payments on capital lease obligations                                                   |       | (2,217               | )          | (2,559 | ) |
| Debt issuance costs                                                                               |       | (17                  | )          | (28 | ) |
| Excess tax benefits from stock-based compensation                                                 |       | 206                  |       | 677 |   |
| Proceeds from issuance of shares relating to employee stock options  and employee stock purchases |       | 384                  |       | 746 |   |
|                                                                                              |       |                 |       |   |   |
| Net cash (used in) financing activities                                                           |       | (80,079              | )          | (627 | ) |
|                                                                                              |       |                 |       |   |   |
| **Net (decrease) in cash and cash equivalents**                                                   |       | (25,460              | )          | (28,886 | ) |
|                                                                                              |       |                 |       |   |   |
| Cash and cash equivalents, beginning of period                                                    |       | 146,411              |       | 187,009 |   |
|                                                                                              |       |                 |       |   |   |
| **Cash and cash equivalents, end of period**                                                      |       | $                    | 120,951    |   | $ | 158,123 |   |
|                                                                                              |       |                 |       |   |   |
| **Supplemental disclosure of cash flow  information:**                                            |       |                 |       |   |   |
| Cash paid during the period for:                                                                  |       |                 |       |   |   |
| Interest                                                                                          |       | $                    | 7,234      |   | $ | 8,116 |   |
| Income taxes, net of refunds                                                                      |       | $                    | 3,500      |   | $ | 4,912 |   |
| Noncash operating activities:                                                                     |       |                 |       |   |   |
| Asset impairment (See Note 11)                                                                    |       | $                    | 4,920      |   | $ | — |   |
| Noncash investing activities:                                                                     |       |                 |       |   |   |
| Assets acquired under capital leases                                                              |       | $                    | 6,240      |   | $ | 1,140 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

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**RUSHENTERPRISES, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited**)

 

**1 — Principles of Consolidationand Basis of Presentation**

 

The interim consolidatedfinancial statements included herein have been prepared by Rush Enterprises, Inc.and its subsidiaries (collectively referred to as the “Company”), withoutaudit, pursuant to the rules and regulations of the Securities andExchange Commission.  All adjustmentshave been made to the accompanying interim consolidated financial statements,which, in the opinion of the Company’s management, are necessary for a fairpresentation of the Company’s operating results.  All adjustments are of a normal recurringnature.  Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith generally accepted accounting principles (“GAAP”) have been condensed oromitted pursuant to such rules and regulations.  It is recommended that these interimconsolidated financial statements be read in conjunction with the consolidatedfinancial statements and the notes thereto included in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2008.  Results of operations for interim periods arenot necessarily indicative of results that may be expected for any otherinterim periods or the full fiscal year.

 

The Company has reviewedand evaluated events and transactions which have occurred subsequent to June 30,2009 through August 10, 2009, the date of issuance of these financialstatements.

 

**2 — Goodwill and Other IntangibleAssets**

 

The Company performs anannual impairment review of goodwill during the fourth quarter of each year,however, an interim evaluation of goodwill was required during the secondquarter of 2009 due to General Motors’ decision to terminate production ofmedium-duty GMC trucks, which resulted in the winding-down of the Company’smedium-duty GMC truck franchises.

 

Thegoodwill allocation was based on the relative fair values of the medium-dutyGMC truck franchises and the portion of the Company’s Truck Segmentremaining.  The Company’s Truck Segmentrecorded a non-cash charge of $0.8 million related to the impairment ofthe goodwill of its medium-duty GMC truck franchises.  See Note 11 for further discussion of thewind-down of the Company’s medium-duty GMC truck franchise agreements.

 

**3 — Commitments and Contingencies**

 

The Company is contingentlyliable to finance companies for certain notes initiated on behalf of suchfinance companies related to the sale of trucks and constructionequipment.  The majority of financecontracts are sold without recourse against the Company. For those finance contractssold with recourse, the liability associated with a majority of such contractsis generally limited to 5% to 20% of the outstanding amount of each noteinitiated on behalf of the finance company. However, the Company has a financeprogram that accepts 100% liability, with some restrictions, for theoutstanding amount of each note initiated on behalf of the financecompany.  In order for a contract to beaccepted into this finance program, a customer must meet strict creditrequirements or maintain a significant equity position in the truck beingfinanced; consequently, less than 1% of the Company’s portfolio balance relatedto finance contracts sold by the Company are under this 100% liability financeprogram and the Company does not expect to finance a significant percentage ofits truck sales under this 100% liability finance program in the future. TheCompany provides for an allowance for repossession losses and early repaymentpenalties that it may be liable for under finance contracts sold.

 

TheCompany is involved in various claims and legal actions arising in the ordinarycourse of business. The Company believes it is unlikely that the final outcomeof any of the claims or proceedings to which the Company is a party would havea material adverse effect on the Company’s financial position or results ofoperations; however, due to the inherent uncertainty of litigation, there canbe no assurance that the resolution of any particular claim or proceeding wouldnot have a material adverse effect on the Company’s results of operations forthe fiscal period in which such resolution occurred.

 

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**4 — Earnings Per Share**

 

Thefollowing table sets forth the computation of basic and diluted earnings pershare:

 
| ** **                                                                                                       | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                       | ** ** | **2009**                             | ** ** | **2008**                           | ** ** | **2009** | ** ** | **2008** | ** ** |
| Numerator:                                                                                                       |       |                                 |       |                               |       |   |   |   |   |
| Numerator for basic and diluted earnings pershare, net  (loss) income available to commonshareholders            |       | $                                    | (1,521,000 | )                                  | $          | 6,067,000 |   | $ | 1,342,000 |   | $ | 15,742,000 |   |
|                                                                                                             |       |                                 |       |                               |       |   |   |   |   |
| Denominator:                                                                                                     |       |                                 |       |                               |       |   |   |   |   |
| Denominator for basic earnings per share,adjusted  weighted average shares outstanding                           |       | 37,038,835                           |       | 38,457,698                         |       | 37,015,257 |   | 38,415,421 |   |
| Effect of dilutive securities:                                                                                   | ** ** | ** **                           |       |                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Employee and director stock options and restricted share awards                                                  |       | —                               |       | 513,663                            |       | 374,184 |   | 535,403 |   |
| Denominator for diluted earnings per share,adjusted  weighted average shares outstandingand assumed  conversions |       | 37,038,835                           |       | 38,971,361                         |       | 37,389,441 |   | 38,950,824 |   |
|                                                                                                             |       |                                 |       |                               |       |   |   |   |   |
| Basic (loss) earnings per common share                                                                           |       | $                                    | (.04       | )                                  | $          | .16 |   | $ | .04 |   | $ | .41 |   |
| Diluted (loss) earnings per common share and commonshare  equivalents                                            |       | $                                    | (.04       | )                                  | $          | .16 |   | $ | .04 |   | $ | .40 |   |

 

Options to purchase shares of common stock that wereoutstanding for the three months and six months ended June 30,2009 and 2008 that were not included in the computation of diluted earnings pershare because the effect would have been anti-dilutive are as follows:

 
| ** **                                                 | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                 | ** ** | **2009**                             | ** ** | **2008**                           | ** ** | **2009** | ** ** | **2008** | ** ** |
| Options in the money and non-vested restricted shareawards |       | 1,910,291                            | (1)        | —                             |       | — |   | — |   |
| Other options                                              |       | 1,572,231                            |       | 554,365                            |       | 1,961,028 |   | 554,365 |   |
| Total anti-dilutive securities                             |       | 3,482,522                            |       | 554,365                            |       | 1,961,028 |   | 554,365 |   |

 

----

(1)          The Companycannot include potentially dilutive common shares in the computation of anydiluted per-share amount when a loss from continuing operations exists.  If the Company had not recorded a loss fromcontinuing operations in the second quarter of 2009, 505,322 dilutive shareswould have been included in diluted earnings per share.

 

**5****—****Stock Options and Restricted Stock Awards**

 

*Valuationand Expense Information under SFAS 123(R)*

 

The Company accounts forstock-based compensation in accordance with Statement of Financial AccountingStandards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”),which requires the measurement and recognition of compensation expense for allshare-based payment awards made to the Company’s employees and directorsincluding employee stock options, restricted share awards and employee stockpurchases related to the Employee Stock Purchase Plan based on estimated fairvalues.  During the three months ended June 30,2009, the Company granted restricted stock awards to directors as authorized bythe Rush Enterprises, Inc. Amended and Restated 2006 Non-Employee DirectorStock Plan.  Stock-based compensationexpense, calculated using the Black-Scholes option-pricing model and includedin selling, general and administrative expense, was $1.2 million for the threemonths ended June 30, 2009, and $1.2 million for the three months ended June 30,2008.  Stock-based compensation expense,included in selling, general and administrative expense, for the six monthsended June 30, 2009, was $2.5 million and for the six months ended June 30,2008, was $2.4 million.  As of June 30, 2009, there was$5.0 million of total unrecognized compensation cost related to non-vestedshare-based compensation arrangements to be recognized over a weighted-averageperiod of 3.1 years.

 

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**6****—****Investments**

 

TheCompany 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 thantemporary.  If the impairment is deemedto be temporary, the Company records an unrealized loss in other comprehensiveincome.  If the impairment is deemedother than temporary, the Company records the impairment in the Company’sconsolidated statement of income.

 

TheCompany historically invested in interest-bearing short-term investmentsprimarily consisting of investment-grade auction rate securities classified asavailable-for-sale and reported at fair value. These types of investments were designed to provide liquidity through anauction process that reset the applicable interest rates at predetermined periodsranging from 1 to 35 days.  This resetmechanism was intended to allow existing investors to continue to own theirrespective interest in the auction rate security or to gain immediate liquidityby selling their interests at par.

 

Asa 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 insufficientdemand.  However, a failed auction doesnot represent a default by the issuer. The auction rate securities continue to pay interest in accordance withthe terms of the underlying security; however, liquidity will be limited untilthere is a successful auction or until such time as other markets for theseinvestments develop.  The Companybelieves that its auction rate securities will liquidate within the next twelvemonths and has classified them as a current asset on its consolidated balancesheet.  The Company has the intent andability to hold these auction rate securities until liquidity returns to themarket.  The Company does not believethat the lack of liquidity relating to its auction rate securities will have amaterial impact on its ability to fund operations.

 

Asof June 30, 2009, the Company holds $7.6 million of auction ratesecurities with underlying tax-exempt municipal bonds with stated maturities of22 years.  These bonds have credit wrapinsurance and a credit rating of A by Standard & Poor’s.

 

TheCompany believes that the credit quality and fair value of the auction ratesecurities it holds has not been negatively impacted; therefore, no impairmentcharges have been recorded as of June 30, 2009.  As of June 30, 2009, the Company hasvalued these investments at fair value, which approximates cost.  The Company used observable inputs todetermine fair value, including consideration of broker quotes, the overallquality of the underlying municipality, the credit quality of the insurancecompany, as well as successful subsequent auctions.  Accordingly, the Company has considered thisfair value to be a Level 2 valuation under SFAS No. 157, “Fair Value Measurement.”  If the credit quality of theseinvestments deteriorates, or adverse developments occur in the bond insurancemarket, the Company may be required to record an impairment charge on theseinvestments in the future.

 

**7****—****Inventory**

 

New and used truck andequipment inventory is reviewed quarterly and, if necessary, the Company makesadjustments to the value of specific units. The Companyrecorded a used truck inventory write-down of $5.4 million during the quarterended June 30, 2008 and $1.1 million during the quarter ended June 30,2009, which was recorded as a charge to cost of goods sold.  On both occasions, the Company adjusted itsused truck inventory to its estimated market value, which it considers to bethe net realizable value plus a reasonable profit percentage.

 

Duringthe quarter ended June 30, 2009, the Company recorded a net inventorywrite-down of $3.4 million on new medium-duty GMC trucks and a net write-downof $0.6 million on its GMC parts inventory due to General Motors’ decision todiscontinue manufacturing GMC medium-duty trucks and to wind-down the Company’smedium-duty GMC truck franchise agreements. See Note 11 for further discussion of the wind-down of the Company’smedium-duty GMC truck franchise agreements.

 

**8 — Segment Information**

 

The Company currently has two reportable business segments: the TruckSegment and the Construction Equipment Segment. The Truck Segment operates anetwork of Rush Truck Centers that provides an integrated one-stop source forthe trucking needs of its customers, including retail sales of new and usedmedium-duty and heavy-duty trucks; aftermarket parts, service and body shopfacilities; and a wide array of financial services, including the financing ofnew and used truck purchases, insurance products and truck leasing and rentals.The Construction Equipment Segment operates a full-service John Deereconstruction equipment dealership that serves the Houston, Texas metropolitanarea. Construction Equipment Segment operations include the retail sale of newand used construction equipment, aftermarket parts and service facilities, andthe financing of new and used construction equipment.

 

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Theaccounting policies of the segments are the same as those described in thesummary of significant accounting policies in the annual report. The Companyevaluates performance based on income before income taxes not includingextraordinary items.

 

The Company accounts for intersegment sales andtransfers as if the sales or transfers were to third parties; that is, atcurrent market prices. There were no material intersegment sales during thequarters ended June 30, 2009 and 2008.

 

TheCompany’s reportable segments are strategic business units that offer differentproducts and services. They are managed separately because each business unit requiresdifferent technology and marketing strategies. Business units were maintainedthrough expansion and acquisitions.  Thefollowing table contains summarized information about reportable segment profitor loss and segment assets for the periods ended June 30, 2009 and 2008(in thousands):

 
| ** **                              | ** ** | **Truck  Segment** | ** ** | **Construction  Equipment  Segment** | ** ** | **All Other** | ** ** | **Totals** | ** ** |
|-----------------------------------------|------------|--------------------|------------|--------------------------------------|------------|---------------|------------|------------|------------|
|                                    |       |               |       |                                 |       |          |       |       |       |
| *Three months ended June 30, 2009* |       |               |       |                                 |       |          |       |       |       |
|                                    |       |               |       |                                 |       |          |       |       |       |
| Revenues from external customers        |       | $                  | 298,266    |                                 | $          | 9,557         |       | $          | 4,305      |   | $ | 312,128 |   |
| Segment income before taxes             |       | (3,838             | )          | 276                                  |       | (396          | )          | (3,958     | )          |
| Segment assets                          |       | 907,990            |       | 29,950                               |       | 27,538        |       | 965,478    |       |
|                                    |       |               |       |                                 |       |          |       |       |       |
| *Six months ended June 30, 2009*   |       |               |       |                                 |       |          |       |       |       |
|                                    |       |               |       |                                 |       |          |       |       |       |
| Revenues from external customers        |       | $                  | 611,510    |                                 | $          | 21,152        |       | $          | 8,552      |   | $ | 641,214 |   |
| Segment income before taxes             |       | (125               | )          | 1,141                                |       | (872          | )          | 144        |       |
|                                    |       |               |       |                                 |       |          |       |       |       |
| *Three months ended June 30, 2008* |       |               |       |                                 |       |          |       |       |       |
|                                    |       |               |       |                                 |       |          |       |       |       |
| Revenues from external customers        |       | $                  | 425,165    |                                 | $          | 24,651        |       | $          | 4,902      |   | $ | 454,718 |   |
| Segment income before taxes             |       | 8,147              |       | 1,850                                |       | (291          | )          | 9,706      |       |
| Segment assets                          |       | 989,906            |       | 27,874                               |       | 28,247        |       | 1,046,027  |       |
|                                    |       |               |       |                                 |       |          |       |       |       |
| *Six months ended June 30, 2008*   |       |               |       |                                 |       |          |       |       |       |
|                                    |       |               |       |                                 |       |          |       |       |       |
| Revenues from external customers        |       | $                  | 802,298    |                                 | $          | 47,069        |       | $          | 9,209      |   | $ | 858,576 |   |
| Segment income before taxes             |       | 22,183             |       | 3,768                                |       | (764          | )          | 25,187     |       |

 

Revenues from segments below the quantitative thresholds requiring themto be reported separately are attributable to three operating segments of theCompany. These segments include a tire company, an insurance agency, and ahunting lease operation. None of these segments has ever met any of thequantitative thresholds that would require them to be reported separately.

 

**9 — Income Taxes**

 

The Company accrued unrecognized income tax benefitstotaling $1.9 million as a component of accrued liabilities as of June 30,2009 and December 31, 2008.  Theunrecognized tax benefits of $1.9 million at June 30, 2009, if recognized,would impact the Company’s effective tax rate. Included in this $1.9 million accrual is accrued interest of $185,000related to unrecognized tax benefits.  Noamounts were accrued for penalties.

 

The Company does not anticipate a significant changein the amount of unrecognized tax benefits in the next 12 months.  As of June 30, 2009, the tax years endedDecember 31, 2005, through 2008 remained subject to examination by taxauthorities.  The U.S. Internal RevenueService is currently examining the Company’s federal income tax return for thetax year 2005.

 

Prior to the application ofalternative fuel vehicle tax credits, the Company provided for taxes at a 39.0%rate in the second quarter of 2009, compared to a rate of 37.5% in the secondquarter of 2008.  The tax rate in thesecond quarter of 2009 was offset $0.9 million by tax credits for sales ofalternative fuel vehicles to tax-exempt entities.  For the remainder of 2009, the Companyexpects to provide for taxes at a rate of 39.0% prior to the application of alternative fuel vehicle tax 

 

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credits.  As a result, the Company’s effective taxrate may vary significantly depending on the number of alternative fuelvehicles sold to tax-exempt entities in any given period.

 

**10 — Fair Value of FinancialInstruments**

 

The following methods and assumptions were used by the Company inestimating the fair value of financial instruments at December 31, 2008:

 

Thecarrying value of current assets and current liabilities approximates the fairvalue due to the short maturity of these items.

 

Thefair value of the Company’s long-term debt is based on secondary marketindicators.  Since the Company’s debt isnot quoted, estimates are based on each obligation’s characteristics, includingremaining maturities, interest rate, credit rating, collateral, amortizationschedule and liquidity.  The carryingamount approximates fair value.

 

**11 — Medium-Duty GMC TruckFranchises**

 

During the second quarter of2009, General Motors made the decision to terminate its medium-duty GMC truckproduction and wind-down the Company’s medium-duty GMC truck franchises, whichforced the Company to take a $6.7 million pre-tax asset impairment charge.  The impairment charge was offset by $1.8million in assistance from General Motors. This impairment charge resulted in a net charge to cost of sales of $4.0million, a net charge to SG&A expense of $0.1 million and a charge toamortization expense of $0.8 million. See Management’s Discussion and Analysis of Financial Condition andResults of Operations for additional detail related to the wind-down of theCompany’s medium-duty GMC truck franchises.

 

**12 — Recent AccountingPronouncements**

 

In April 2009,the Financial Accounting Standards Board (“FASB”) issued FASB Staff PositionFAS 141(R)-1,**“Accounting for Assets Acquired andLiabilities Assumed in a Business Combination that Arise from Contingencies”(“FAS 141(R)-1”).  FAS 141(R)-1requires that assets acquired and liabilities assumed in a business combinationthat arise from contingencies be recognized at fair value, in accordance withFAS 157, “**FairValue Measurements**,” if the fair value can be determinedduring the measurement period.  If thefair value of a pre-acquisition contingency cannot be determined during themeasurement period, FAS 141(R)-1 requires that the contingency be recognized atthe acquisition date in accordance with FASB Statement No. 5, “Accountingfor Contingencies,” and FASB Interpretation No. 14, “Reasonable Estimationof the Amount of a Loss,” if it meets the criteria for recognition in that guidance.FAS 141(R)-1 is effective for business combinations for which the acquisitiondate is on or after the beginning of the first annual reporting periodbeginning on or after December 15, 2008. The Company does not expect the adoption of SFAS 141(R)-1 to have asignificant impact on its consolidated results of operations and financialposition, but will impact any business combinations that close in the future.

 

In May 2009, theFASB issued Statement of Financial Accounting Standard No. 165 (“SFASNo. 165”), “Subsequent Events.” SFAS No. 165 establishes thestandards of accounting for and disclosure of events that occur after thebalance sheet date but before financial statements are issued. This Statementalso requires the disclosure of the date through which subsequent events havebeen evaluated. The Company adopted this standard, as required, for the periodended June 30, 2009.  Adoptionof SFAS No. 165 did not have an impact on the Company’s consolidatedfinancial statements.

 

Effective April 1, 2009,the Company adopted FASB Staff Position FAS 107-1 and APB 28-1, “InterimDisclosures about Fair Value of Financial Instruments.” This FASB StaffPosition extends the disclosure requirements under SFAS No. 107, “Disclosuresabout Fair Value of Financial Instruments,” to interim financial statements. Italso amends APB Opinion No. 28, “Interim Financial Reporting” to requirethose disclosures in summarized financial information at interim reportingperiods. This FASB Staff Position only requires additional disclosure and didnot have an impact on the Company’s consolidated financial statements.

 

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**ITEM2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

 

*Certain statements contained in this Form 10-Q (orotherwise made by the Company or on the Company’s behalf from time to time inother reports, filings with the Securities and Exchange Commission, newsreleases, conferences, website postings or otherwise) that are not statementsof historical fact constitute “forward-looking statements” within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Exchange Act of 1934, as amended(the “Exchange Act”), notwithstandingthat such statements are not specifically identified. Forward-lookingstatements include statements about the Company’s financial position, businessstrategy and plans and objectives of management of the Company for futureoperations.  These forward-lookingstatements reflect the best judgments of the Company about the future eventsand trends based on the beliefs of the Company’s management as well asassumptions made by and information currently available to the Company’smanagement.  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 theCompany or its subsidiaries or Company management, are intended to identifyforward-looking statements but are not the exclusive means of identifying suchstatements.  Forward-looking statementsreflect the current view of the Company with respect to future events and aresubject to risks and uncertainties that could cause actual results to differmaterially from those in such statements. Important factors that could causeactual results to differ materially from those in the forward-lookingstatements include, but are not limited to, those set forth under Item 1A—RiskFactors in the Company’s Annual Report on Form 10-K for the year ended December 31,2008 as well as future growth rates and margins for certain of our products andservices, future demand for our products and services, risks associated withthe current recession and its impact on capital markets and liquidity,competitive factors, general economic conditions, cyclicality, marketconditions in the new and used truck and equipment markets, customer relations,relationships with vendors, the interest rate environment, governmentalregulation and supervision, seasonality, distribution networks, productintroductions and acceptance, technological change, changes in industrypractices, one-time events and other factors described herein and in theCompany’s quarterly and other reports filed with the Securities and ExchangeCommission (collectively, “Cautionary Statements”). Although the Companybelieves that its expectations are reasonable, it can give no assurance thatsuch expectations will prove to be correct. Based upon changing conditions,should any one or more of these risks or uncertainties materialize, or shouldany underlying assumptions prove incorrect, actual results may vary materiallyfrom those described in any forward-looking statements. All subsequent writtenand oral forward-looking statements attributable to the Company or personsacting on its behalf are expressly qualified in their entirety by theapplicable Cautionary Statements. All forward-looking statements speak only asthe date on which they are made and the Company undertakes no duty to update orrevise any forward-looking statements.*

 

The following commentsshould be read in conjunction with the Company’s consolidated financialstatements 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 MotorsCompany. PACCAR**®** is a registered trademark of PACCAR, Inc.GMC**®** is a registered trademark of General MotorsCorporation. Hino**®** is a registered trademark of Hino Motors, Ltd.UD**®** is a registered trademark of Nissan DieselMotor Co., Ltd. Isuzu**®** is a registered trademark of Isuzu MotorsLimited. 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 TrademarkHolding AB. Freightliner**®** is a registered trademark of FreightlinerCorporation. Mack**®** is a registered trademark of Mack Trucks, Inc.Navistar**®** is a registered trademark of NavistarInternational Corporation. Caterpillar**®** is a registered trademark of Caterpillar, Inc.Cummins**®** is a registered trademark of Cummins EngineCompany, Inc. PacLease**®** is a registered trademark of PACCAR LeasingCorporation. CitiCapital**®** is a registered trademark of Citicorp. Ford**®** is a registered trademark of Ford MotorCompany.  Cummins**®** is a registered trademark of CumminsIntellectual Property, Inc.  Eatonis a registered trademark of Eaton Corporation. Arvin Meritor**®** is a registered trademark of MeritorTechnology, Inc.**®** Case is a registered trademark of Case Corporation.  Komatsu**®** is a registered trademark of Kabushiki KaishaKomatsu Seisakusho Corporation Japan. The CIT Group**®** is a registered trademark of CIT GroupHoldings, Inc.  JPMorgan Chase**®** is a registered trademark of JP Morgan Chase &Co.  SAP**®** is a registered trademark of SAPAktiengesellschaft. **International**®** is a registered trademark of Navistar InternationalTransportation Corp. B**lue Bird**®** is a registered trademark ofBlue Bird Investment Corporation.*

 

**General**

 

Rush Enterprises, Inc. was incorporated in Texasin 1965 and currently consists of two reportable segments: the Truck Segmentand the Construction Equipment Segment. The Company conducts business through numerous subsidiaries, all ofwhich it wholly owns, directly or indirectly. Its principal offices are located at 555 IH 35 South, New Braunfels,Texas 78130.

 

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The Company is a full-service, integrated retailer of premiumtransportation and construction equipment and related services.  The Company’s Rush Truck Centers sellvehicles manufactured by Peterbilt Motors Company (a division of PACCAR, Inc.),International, Volvo, GMC, Hino, UD, Ford, Isuzu and Blue Bird.  The Company also operates two John Deereconstruction equipment dealerships at its Rush Equipment Centers in SoutheastTexas. The newest construction equipment dealership opened in Rose City, Texasin July 2008.  Through itsstrategically located network of Rush Truck Centers and its Rush EquipmentCenters, the Company provides one-stop service for the needs of its customers,including retail sales of new and used trucks and construction equipment,aftermarket parts sales, service and repair facilities, and financing, leasingand rental, and insurance products.

 

The Company’s Rush Truck Centers are principally located in hightraffic areas throughout the southern United States.  Since commencing operations as a Peterbiltheavy-duty truck dealer in 1966, the Company has grown to operate more than 50Rush Truck Centers in Alabama, Arizona, California, Colorado, Florida, Georgia,New Mexico, North Carolina, Oklahoma, Tennessee and Texas.

 

Our business strategy consists of providing our customers withcompetitively priced products supported with timely and reliable servicethrough our integrated dealer network. We intend to continue to implement ourbusiness strategy, reinforce customer loyalty and remain a market leader bycontinuing to develop our Rush Truck Centers and Rush Equipment Centers as weextend our geographic focus through strategic acquisitions of new locations andexpansions of our existing facilities and product lines.

 

**Critical AccountingPolicies**

 

The Company’s discussionand analysis of its financial condition and results of operations are based onthe Company’s consolidated financial statements, which have been prepared inaccordance with U.S. GAAP.  Thepreparation of these consolidated financial statements requires the Company tomake estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period.  Actual results may differ from thoseestimates.  The Company believes thefollowing accounting policies affect its more significant judgments andestimates used in the preparation of its consolidated financial statements.

 

*Inventories*

 

Inventories are stated atthe lower of cost or market value.  Costis determined by specific identification of new and used truck and constructionequipment inventory and by the first-in, first-out method for tires, parts andaccessories.  An allowance is providedwhen it is anticipated that cost will exceed net realizable value.

 

*Goodwill*

 

The Company applies theprovisions of Statement of Financial Accounting Standards No. 142, “Goodwilland Other Intangible Assets” (“SFAS 142”), in accounting for goodwill.  SFAS 142 requires that goodwill and otherintangible assets that have indefinite useful lives may not be amortized, butinstead must be tested at least annually for impairment, and intangible assetsthat have finite useful lives should continue to be amortized over their usefullives.  SFAS 142 also provides specificguidance for testing goodwill and other non-amortized intangible assets forimpairment.  SFAS 142 requires managementto make certain estimates and assumptions in order to allocate goodwill toreporting units and to determine the fair value of a reporting unit’s netassets and liabilities, including, among other things, an assessment of marketcondition, projected cash flows, interest rates and growth rates, which couldsignificantly impact the reported value of goodwill and other intangibleassets.  SFAS 142 requires, in lieu ofamortization, an annual impairment review of goodwill.

 

The Company performs anannual impairment review of goodwill during the fourth quarter of each year orwhen events or circumstances indicate a change may have occurred.  An interim evaluation of goodwill wasrequired during the second quarter of 2009 due to General Motors’ decision toterminate production of medium-duty GMC trucks, which resulted in thewinding-down of the Company’s medium-duty GMC truck franchises.

 

*RevenueRecognition Policies*

 

Income on the sale of a truck or a unit of construction equipment isrecognized when the customer executes a purchase contract with us, the unit hasbeen delivered to the customer and there are no significant uncertaintiesrelated to financing or collectibility. Lease and rental income is recognizedover the period of the related lease or rental agreement. Parts and servicerevenue is recognized at the time the Company sells the parts to its customersor at the time the Company completes the service work order related to serviceprovided to the customer’s unit. Payments received on prepaid

 

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maintenanceplans are deferred as a component of accrued expenses and recognized as incomewhen the maintenance is performed.

 

*Finance and Insurance Revenue Recognition*

 

Finance income related tothe sale of a unit is recognized when the finance contract is sold to a financecompany.  The Company arranges financingfor customers through various retail funding sources and receives a commissionfrom the lender equal to either the difference between the interest ratescharged to customers over the predetermined interest rates set by the financinginstitution or a commission for the placement of contracts. The Company alsoreceives commissions from the sale of various insurance products tocustomers.  Revenue is recognized by theCompany upon the sale of such finance and insurance contracts to the financeand insurance companies net of a provision for estimated repossession lossesand interest charge-backs on finance contracts. The Company is not the obligorunder any of these underlying contracts. In the case of finance contracts, acustomer may prepay, or fail to pay, thereby terminating the underlyingcontract. If the customer terminates a retail finance contract or otherinsurance product prior to scheduled maturity, a portion of the commissionspreviously paid to the Company may be charged back to the Company depending onthe terms of the relevant contracts. The estimate of ultimate charge-backexposure is based on the Company’s historical charge-back expense arising fromsimilar contracts, including the impact of refinance and default rates onretail finance contracts and cancellation rates on other insurance products.The actual amount of historical charge-backs has not been significantlydifferent than the Company’s estimates.

 

*Insurance Accruals*

 

TheCompany is partially self-insured for medical, workers compensation, andproperty and casualty insurance and calculates a reserve for those claims thathave been incurred but not reported and for the remaining portion of thoseclaims that have been reported. The Company uses information provided bythird-party administrators to determine the reasonableness of the calculationsit performs.

 

*Accounting for Income Taxes*

 

Significant management judgment is required to determine the provisionsfor income taxes and to determine whether deferred tax assets will be realizedin full or in part.  Deferred income taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled. When it is more likely than not that all or some portion of specificdeferred income tax assets will not be realized, a valuation allowance must beestablished for the amount of deferred income tax assets that are determinednot to be realizable.  The Company has avaluation allowance related to deferred tax assets in certain states.  Accordingly, the facts and financialcircumstances impacting state deferred income tax assets are reviewed quarterlyand management’s judgment is applied to determine the amount of valuationallowance required in any given period.

 

Additionally,despite the Company’s belief that its tax return positions are consistent withapplicable tax law, management believes that certain positions may bechallenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance,or some partial adjustment reached through negotiations.

 

The Companyfollows FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes — an interpretation of FASB Statement No. 109,” which requires thatonly income tax benefits that meet the “more likely than not” recognitionthreshold be recognized or continue to be recognized on its effectivedate.  The Company’s income tax expenseincludes the impact of reserve provisions and changes to reserves that itconsiders appropriate, as well as related interest.  Unfavorable settlement of any particularissue would require use of the Company’s cash and a charge to income taxexpense.  Favorable resolution would berecognized as a reduction to income tax expense at the time of resolution.

 

*Stock-Based Compensation Expense*

 

The Company applies theprovisions of SFAS 123(R), which requires the measurement and recognition ofcompensation expense for all share-based payment awards made to employees anddirectors including grants of employee stock options and employee stockpurchases under the Employee Stock Purchase Plan based on estimated fairvalues.

 

The Company uses theBlack-Scholes option-pricing model to estimate the fair value of share-basedpayment awards on the date of grant.  Thevalue of the portion of the award that is ultimately expected to vest isrecognized as expense over the requisite service periods in the Company’sConsolidated Statement of Income.

 

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**Results of Operations**

 

Thefollowing discussion and analysis includes the Company’s historical results ofoperations for the three months and six months ended June 30, 2009 and2008.

 

Thefollowing table sets forth for the periods indicated certain financial data asa percentage of total revenues:

 
| ** **                          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                          | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                |       |                                  |       |                                |       |   |   |   |   |
| New and used truck sales            |       | 60.0                                  | %          | 65.4                                | %          | 59.8 | % | 63.9 | % |
| Parts and service                   |       | 32.9                                  |       | 26.5                                |       | 33.0 |   | 27.7 |   |
| Construction equipment sales        |       | 1.8                                   |       | 4.2                                 |       | 1.9 |   | 4.2 |   |
| Lease and rental                    |       | 4.2                                   |       | 2.9                                 |       | 4.2 |   | 3.1 |   |
| Finance and insurance               |       | 0.7                                   |       | 0.7                                 |       | 0.6 |   | 0.8 |   |
| Other                               |       | 0.4                                   |       | 0.3                                 |       | 0.5 |   | 0.3 |   |
| Total revenues                      |       | 100.0                                 |       | 100.0                               |       | 100.0 |   | 100.0 |   |
| Cost of products sold               |       | 83.1                                  |       | 83.6                                |       | 82.2 |   | 82.3 |   |
| Gross profit                        |       | 16.9                                  |       | 16.4                                |       | 17.8 |   | 17.7 |   |
| Selling, general and administrative |       | 16.1                                  |       | 13.0                                |       | 16.0 |   | 13.5 |   |
| Depreciation and amortization       |       | 1.5                                   |       | 0.9                                 |       | 1.3 |   | 0.9 |   |
| Operating income                    |       | (0.7                                  | )          | 2.5                                 |       | 0.5 |   | 3.3 |   |
| Interest expense, net               |       | 0.5                                   |       | 0.4                                 |       | 0.5 |   | 0.4 |   |
| Gain on sale of assets              |       | 0.0                                   |       | 0.0                                 |       | 0.0 |   | 0.0 |   |
| Income before income taxes          |       | (1.2                                  | )          | 2.1                                 |       | 0.0 |   | 2.9 |   |
| Provision for income taxes          |       | (0.8                                  | )          | 0.8                                 |       | (0.2 | ) | 1.1 |   |
| Net Income                          |       | (0.4                                  | )%         | 1.3                                 | %          | 0.2 | % | 1.8 | % |

 

The following table setsforth the unit sales and revenue for new heavy-duty, new medium-duty and usedtrucks and the absorption rate for the periods indicated (revenue in millions):

 
| ** **                 | ** ** | **Three Months Ended  June 30,** | ** ** | **%**    | ** ** | **Six Months Ended  June 30,** | ** ** | **%**    | ** ** |
|----------------------------|------------|---------------------------------------|------------|----------|------------|-------------------------------------|------------|----------|------------|
| ** **                 | ** ** | **2009**                              | ** ** | **2008** | ** ** | **Change**                          | ** ** | **2009** | ** ** | **2008** | ** ** | **Change** | ** ** |
| **Truck unit sales:**      |       |                                  |       |     |       |                                |       |     |       |   |   |   |   |
| New heavy-duty trucks      |       | 954                                   |       | 1,665    |       | (42.7                               | )%         | 1,986    |       | 2,931 |   | (32.2 | )% |
| New medium-duty trucks     |       | 638                                   |       | 979      |       | (34.8                               | )%         | 1,392    |       | 1,951 |   | (28.7 | )% |
| Total new truck unit sales |       | 1,592                                 |       | 2,644    |       | (39.8                               | )%         | 3,378    |       | 4,882 |   | (30.8 | )% |
|                       |       |                                  |       |     |       |                                |       |     |       |   |   |   |   |
| Used truck unit sales      |       | 776                                   |       | 795      |       | (2.4                                | )%         | 1,353    |       | 1,695 |   | (20.2 | )% |
|                       |       |                                  |       |     |       |                                |       |     |       |   |   |   |   |
| **Truck revenue:**         |       |                                  |       |     |       |                                |       |     |       |   |   |   |   |
| New heavy-duty trucks      |       | $                                     | 116.3      |     | $          | 200.9                               |       | (42.1    | )%         | $ | 240.3 |   | $ | 353.2 |   | (32.0 | )% |
| New medium-duty trucks     |       | 40.7                                  |       | 57.1     |       | (28.7                               | )%         | 89.5     |       | 112.3 |   | (20.3 | )% |
| Total new truck revenue    |       | $                                     | 157.0      |     | $          | 258.0                               |       | (39.1    | )%         | $ | 329.8 |   | $ | 465.5 |   | (29.2 | )% |
|                       |       |                                  |       |     |       |                                |       |     |       |   |   |   |   |
| Used truck revenue         |       | $                                     | 29.8       |     | $          | 38.4                                |       | (22.4    | )%         | $ | 52.5 |   | $ | 81.0 |   | (35.2 | )% |
|                       |       |                                  |       |     |       |                                |       |     |       |   |   |   |   |
| **Other revenue:**(1)      |       | $                                     | 0.3        |     | $          | 0.8                                 |       | (62.5    | )%         | $ | 0.8 |   | $ | 2.2 |   | (63.6 | )% |
|                       |       |                                  |       |     |       |                                |       |     |       |   |   |   |   |
| **Absorption rate:**       |       | 95.2                                  | %          | 105.4    | %          | (9.7                                | )%         | 96.2     | %          | 105.1 | % | (8.5 | )% |

 

----

(1) Includes sales oftruck bodies, trailers and other new equipment.

 

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**KeyPerformance Indicator**

 

*AbsorptionRate*

 

Managementuses many performance metrics to evaluate the performance of its dealerships,but considers its “absorption rate” to be of critical importance.  Absorption rate is calculated by dividing thegross profit from the parts, service and body shop departments by the overheadexpenses of all of a dealership’s departments, except for the selling expensesof the new and used truck departments and carrying costs of new and used truckinventory.  When 100% absorption isachieved, then gross profit from the sale of a truck, after sales commissionsand inventory carrying costs, directly impacts operating profit.  In 1999, the Company’s truck dealerships’absorption rate was approximately 80%. The Company has made a concerted effort to increase its absorption ratesince 1999.  The Company’s truckdealerships achieved a 105.4% absorption rate for the second quarter of 2008,and 95.2% absorption rate for the second quarter in 2009.

 

**Three Months Ended June 30,2009, Compared to Three Months Ended June 30, 2008**

 

Asexpected, continued weak truck and aftermarket sales caused the second quarterto be the most challenging operating period since this downturn began in 2007.

 

During the second quarter of2009, General Motors made the decision to terminate its medium-duty GMC truckproduction and wind-down the Company’s medium-duty GMC truck franchises, whichforced the Company to take a $6.7 million pre-tax asset impairment charge.  The impairment charge was offset by $1.8million in assistance from General Motors, which was recorded as a receivablefrom General Motors.  This impairment chargeresulted in a net charge to cost of sales of $4.0 million, a net charge toSG&A expense of $0.1 million and a charge to amortization expense of $0.8million.  The Company was the largestmedium-duty GMC truck dealership group in the country with 15 franchiselocations in six states and the loss these truck franchises will likely havesome negative impact on our future financial performance.

 

Medium-dutyGMC truck sales, service and parts revenues totaled approximately $35.4 millionin 2008, and $16.4 million in the first six months of 2009.  The Company will continue to provide partsand service to its existing GMC customers. The Company represents multiple medium-duty brands that currentlycompete with GMC across our dealership network. The Company believes that the loss of the medium-duty GMC truck linewill be partially offset by sales of competitive medium-duty products.

 

Theextended recession continued to impact the Company’s Rush Truck Centers’ parts,service and body shop operations throughout the second quarter of 2009 asrevenues decreased 16.6% and gross profit decreased 21.4%, compared to thesecond quarter of 2008.   Despite the21.4% decline in gross profit, our absorption rate only declined 10.2%, from105.4% in the second quarter of 2008 to 95.2% in the second quarter of 2009 dueto continued expense management.

 

Decreasedfreight tonnage and overall weakness continued into almost every market theCompany serves.  Freight

-intensiveautomotive, construction and oil and gas industries remain particularlydepressed during the second quarter of 2009. Many customers continue to have excess capacity which allows them todelay maintenance on the trucks they already own and delay purchases of newtrucks.

 

A.C.T. ResearchCo., LLC (“A.C.T. Research”), a truck industry data and forecasting serviceprovider, currently predicts U.S. retail sales of Class 8 trucks ofapproximately 93,000 units in 2009, a 33.5% decline from the number of unitssold in 2008.  With U.S. Class 8retail sales forecast now below 100,000 units, the Company expects this willcontinue to be one of the weakest new Class 8 truck markets since 1983.

 

A.C.T. Research currently predicts U.S. retail salesof Class 4, 5, 6, and 7 medium-duty trucks of approximately 112,000 unitsin 2009, a 35.4% decline from the number of units sold in 2008.  The medium-duty truck market will remain weakuntil general economic conditions in the U.S. begin to improve.

 

The Company’s overall parts, service and body shopsales decreased 14.7% in the second quarter of 2009 compared to thesecond quarter of 2008.  We anticipate parts, service and body shopsales to remain weak until general economic conditions improve.

 

In the second quarter of 2009, the Company’sconstruction equipment segment revenue decreased by 61.2% compared to thesecond quarter of 2008.  This decrease isattributable to the weakening construction equipment market in the Houstonarea.  Current industry forecasts suggestthat construction equipment sales will decline approximately 50% in the Company’sarea of responsibility during 2009 due to lower housing starts, decreased oiland gas activity and general economic conditions.

 

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The ongoing weakness in the economy and tight creditmarkets continue to impact consumer confidence and spending, which have adirect impact on freight demand and, ultimately, our financialperformance.  Overall economicuncertainty continues to make it difficult for the Company to forecast future resultsof operations.

 

*Revenues*

 

Revenuesdecreased $142.6 million, or 31.4%, in the second quarter of 2009,compared to the second quarter of 2008. Sales of new and used trucks decreased $110.0 million, or 37.0%, inthe second quarter of 2009, compared to the second quarter of 2008.  Uncertain economic conditions, the weak freight environment, slowingconstruction markets and tight credit markets contributed to decreaseddemand for trucks and construction equipment and aftermarket service in thesecond quarter of 2009.  The Company does not believe that demandfor trucks will increase until general economic conditions begin to improve andcredit is made available on reasonable terms to a wider range of buyers.

 

The Company sold 954heavy-duty units in the second quarter of 2009, a 42.7% decrease compared to1,665 heavy-duty trucks in the second quarter of 2008.  According to A.C.T.Research, the U.S. Class 8 truck market decreased 40.0% in the secondquarter of 2009, compared to the second quarter of 2008. The Company’s share ofthe U.S. Class 8 truck sales market was approximately 3.9% in 2008.  The Company expects its share to rangebetween 3.9% and 4.2% of the U.S. Class 8 truck market in 2009, whichwould result in the sale of approximately 3,600 to 4,000 Class 8 trucksbased on A.C.T. Research’s current U.S. retail sales estimates of 93,000 units.

 

The Company sold 638medium-duty trucks, including 83 buses, in the second quarter of 2009, a 34.8%decrease compared to 979 medium-duty trucks in the second quarter of 2008.  In June 2008, theCompany acquired certain assets of Capital Bus Sales and Service of Texas, Inc.,which included a Blue Bird bus franchise for the majority of the state ofTexas.  A.C.T. Research estimates thatunit sales of Class 4 through 7 trucks in the U.S. decreased approximately50% in the second quarter of 2009, compared to the second quarter of 2008.  In 2008, the Company achieved a 2.1% share ofthe Class 4 through 7 truck sales market in the U.S.  The Company expects its share to rangebetween 2.3% and 2.5% of the U.S. Class 4 through 7 truck sales market in2009.  This market share percentage wouldresult in the sale of approximately 2,600 to 2,800 of Class 4 through 7trucks in 2009 based on A.C.T. Research’s current U.S. retail sales estimatesof 112,000 units.

 

The Company sold 776 usedtrucks in the second quarter of 2009, a 2.4% decrease compared to 795 usedtrucks in the second quarter of 2008. For 2009, used truck sales volumes and prices will be primarily drivenby general economic conditions and the availability of credit, whichcollectively have had a severe impact on this market since 2008.  The Company expects to sell approximately2,500 to 2,700 used trucks in 2009.

 

Parts and service salesdecreased $17.8 million, or 14.7%, in the second quarter of 2009, compared tothe second quarter of 2008.  Same storeparts and service sales decreased $19.9 million, or 19.8%, in the secondquarter of 2009, compared to the second quarter of 2008, primarily due toweakening economic conditions.    Partsand service sales have continually decreased since the Fall of 2008, and theCompany expects parts and service sales to remain weak through the thirdquarter of 2009.

 

Sales of new and used construction equipment decreased$13.5 million, or 71.1%, in the second quarter of 2009, compared to the secondquarter of 2008.  This decrease waslargely attributable to the weakening construction market in the Houstonarea.  John Deere’s rolling twelve monthaverage market share in the Houston area construction equipment marketdecreased to 16.8% as of June 30, 2009 from a rolling twelve month averageof 22.0% as of June 30, 2008.  In2009, the Company expects new construction equipment unit sales in our area ofresponsibility to decrease approximately 40% to 50%, compared to 2008.

 

Truck lease and rental revenues decreased $0.2million, or 1.0%, in the second quarter of 2009 compared to the second quarterof 2008.  The Company expects lease andrental revenue to increase approximately 2% to 5% in 2009 compared to 2008.

 

Finance and insurancerevenues decreased $0.9 million, or 29.0%, in the second quarter of 2009compared to the second quarter of 2008. The decrease in finance and insurance revenue is a direct result of thedecline in truck sales and the tight credit market.  The Company expects finance and insurancerevenue to fluctuate proportionately with the new Class 8 truck market in2009.  Finance and insurance revenueshave limited direct costs and, therefore, contribute a disproportionate shareof the Company’s operating profits.

 

Other income decreased$0.2 million, or 14.1% in the second quarter of 2009 compared to thesecond quarter of 2008.  Other incomeconsists primarily of the gain on sale realized on trucks from the lease andrental fleet, commissions

 

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earned from John Deere for direct manufacturer salesinto our area of responsibility, document fees related to truck sales andpurchase discounts.

 

*Gross Profit*

 

Gross profit decreased$21.7 million, or 29.2%, in the second quarter of 2009, compared to the secondquarter of 2008.  Gross profit as apercentage of sales increased to 16.9% in the second quarter of 2009 from 16.4%in the second quarter of 2008.  Thisslight increase is primarily a result of a change in our product salesmix.  Truck sales, a lower margin revenueitem, decreased as a percentage of total revenue to 60.0% in the second quarterof 2009 from 65.4% in the second quarter of 2008.  Parts and service revenue, a higher marginrevenue item, increased as a percentage of total revenue to 32.9% in the secondquarter of 2006 from 26.5% in the second quarter of 2008.

 

Grossmargins on Class 8 truck sales decreased to 5.1% in the second quarter of2009, from 7.6% in the second quarter of 2008. Gross marginson Class 8 truck sales were negatively impacted by decreased demand fornew trucks and a change in our product sales mix that included decreased salesof trucks in inventory, which are a higher margin revenue item.  In 2009, the Company expectsoverall gross margins from Class 8 truck sales of approximately 5.0% to7.0%.

 

Grossmargins on medium-duty truck sales decreased to (1.6%) in the second quarter of2009, from 5.2% in the second quarter of 2008. The decrease in gross margin during the second quarter of 2009 islargely attributable to the new GMC medium-duty truck inventory write-down causedby General Motors’ decision to stop manufacturing GMC medium-duty trucks and towind-down the Company’s GMC medium-duty truck franchise agreements.  For the remainder of 2009, the Companyexpects overall gross margins from medium-duty truck sales of approximately5.0% to 7.0%.

 

Gross margins on usedtruck sales increased to 6.7% in the second quarter of 2009, from (6.1%) in thesecond quarter of 2008. The decrease in gross margins in the second quarter of2008 was the result of a $5.4 million write-down of used truck inventory, whichwas necessary because of decreased demand for used trucks as a result ofworsening general economic conditions, decreased freight demand, and the tightcredit market.  Excluding the write-downof used truck inventory, gross margins on used truck sales in the secondquarter of 2008 were 7.3%.  The Companyexpects margins on used trucks will be in the range of approximately 5.5% to7.5% during 2009, but this will largely depend upon general economic conditionsand the availability of credit.

 

Gross margins fromthe Company’s parts, service and body shop operations decreased to 38.9% in thesecond quarter of 2009, from 41.9% in the second quarter of 2008.  Gross profit for the parts, service and bodyshop departments decreased to $39.9 million in the second quarter of 2009 from$50.5 million in the second quarter of 2008. The Company expects gross margins on parts, service and body shopoperations of approximately 39.0% to 41.0% during 2009.

 

Gross margins on new andused construction equipment sales decreased to 4.1% in the second quarter of2009 from 9.3% in the second quarter of 2008. This decrease in gross margin is primarily attributable to a dramaticdecrease in demand for construction equipment and change in our product salesmix.  The Company expects 2009 grossmargins to remain in a range of approximately 5.0% to 10.0% as the Companycontinues efforts to increase its market share.

 

Gross margins from trucklease and rental sales increased to 12.4% in the second quarter of 2009, fromapproximately 11.6% in the second quarter of 2008.  This slight increase in thegross margin from lease and rental sales is primarily due to the increasedutilization of trucks and crane-mounted trucks in our rental fleet.  The Company expects gross margins from lease andrental sales of approximately 11.0% to 16.0% during 2009.  The Company’s policy is to depreciate its lease andrental fleet using a straight line method over the customer’s contractual leaseterm.  The lease unit is depreciated to aresidual value that approximates fair value at the expiration of the leaseterm.  This policy results in the Companyrealizing reasonable gross margins while the unit is in service and acorresponding gain or loss on sale when the unit is sold at the end of thelease term.

 

Finance and insurancerevenues 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 andAdministrative (“SG&A”) expenses decreased $8.6 million, or 14.6%, in thesecond quarter of 2009, compared to the second quarter of 2008.  SG&A expenses as a percentage of salesincreased to 16.1% in the second quarter of 2009, from 13.0% in the secondquarter of 2008.  SG&A expenses as apercentage of sales have historically ranged from 10.0% to 15.0%.  In general, when new and used truck revenuedecreases as a percentage of revenue, SG&A expenses as a percentage ofrevenue will be at, or exceed, the higher end of this range.  In the second quarter of 2009, the selling

 

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portion of SG&A expenses, which consists primarilyof commissions on truck and construction equipment sales, decreased 30.6% andthe general and administrative portion of SG&A decreased 13.0% compared tothe second quarter of 2008.  In 2009, theCompany expects the selling portion of SG&A expenses to be approximately25% to 28% of new and used truck gross profit. The selling portion of SG&A varies based on the gross profit derivedfrom truck sales.  The Company tookaction throughout 2008 and in the first quarter of 2009 to reduce overheadexpenses to a level more appropriate to serve the current market.  The Company will continue to adjust thegeneral and administrative portion of SG&A in accordance with marketconditions.

 

*Interest Expense, Net*

 

Net interest expensedecreased $0.3 million, or 15.0%, in the second quarter of 2009 comparedto the second quarter of 2008.  If floorplan interest rates remain at current levels, the Company expects net interestexpense in 2009 to decrease approximately 10.0% compared to 2008.

 

*Income Before Income Taxes*

 

Incomebefore income taxes decreased $13.7 million, or 140.8%, in the second quarter of 2009 compared tothe second quarter of 2008, as a result of the factors describedabove.  The Company believes that incomebefore income taxes in 2009 will decrease compared to 2008 based on the factorsdescribed above.

 

*Income Taxes*

 

Income taxes decreased$6.1 million, or 167.0%, in the second quarter of 2009, compared to the second quarter of2008.  Prior to the application ofalternative fuel vehicle tax credits, the Company provided for taxes at a 39.0%rate in the second quarter of 2009, compared to a rate of 37.5% in the secondquarter of 2008.  The tax rate in thesecond quarter of 2009 was offset $0.9 million by tax credits for sales ofalternative fuel vehicles to tax-exempt entities.  For the remainder of 2009, the Companyexpects to provide for taxes at a rate of 39.0% prior to the application of alternative fuel vehicle tax credits.  As a result, the Company’s effective tax rate may varysignificantly depending on the number of alternative fuel vehicles sold totax-exempt entities in any given period. These transactions will increase the Company’s SG&A expense becausethe Company passes a majority of these credits on to these tax-exempt entitiesin the form of a discretionary rebate. As a result, the Company’s effective tax rate may vary significantlydepending on the number of alternative fuel vehicles sold to tax-exemptentities.

 

**Six Months Ended June 30,2009, Compared to Six Months Ended June 30, 2008**

 

Unless otherwise statedbelow, the Company’s variance explanations and future expectations with regardto the items discussed in this section are set forth in the discussion of the “ThreeMonths Ended June 30, 2009, Compared to Three Months Ended June 30,2008.”

 

Revenuesdecreased $217.4 million, or 25.3%, in the first six months of 2009,compared to the first six months of 2008. Sales of new and used trucks decreased $165.5 million, or 30.2%, inthe first six months of 2009, compared to the first six months of 2008.

 

The Company sold 1,986heavy-duty units in the first six months of 2009, a 32.2% decrease compared to2,931 heavy-duty trucks in the first six months of 2008.  According to A.C.T.Research, the U.S. Class 8 truck market decreased 36.0% in the first sixmonths of 2009, compared to the first six months of 2008.

 

The Company sold 1,392medium-duty trucks, including 211 buses, in the first six months of 2009, a28.7% decrease compared to 1,951 medium-duty trucks in the first six months of2008.  A.C.T. Research estimatesthat unit sales of Class 4 through 7 trucks in the U.S decreasedapproximately 47.0% in the first six months of 2009, compared to the first sixmonths of 2008.

 

The Company sold 1,353used trucks in the first six months of 2009, a 20.2% decrease compared to 1,695used trucks in the first six months of 2008.

 

Parts and service salesdecreased $26.1 million, or 11.0%, in the first six months of 2009, compared tothe first six months of 2008.

 

Sales of new and usedconstruction equipment decreased $23.4 million, or 65.2%, in the first sixmonths of 2009, compared to the first six months of 2008.

 

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Truck lease and rental revenues increased $0.3million, or 1.2%, in the first six months of 2009, compared to the first sixmonths of 2008.

 

Finance and insurancerevenues decreased $2.8 million, or 41.4%, in the first six months of 2009,compared to the first six months of 2008.

 

Other income slightlyincreased $0.2 million, or 6.9%, in the first six months of 2009, comparedto the first six months of 2008.  Otherincome consists of the gain on sale realized on trucks from the lease andrental fleet, commissions earned from John Deere for direct manufacturer salesinto our area of responsibility, document fees related to truck sales andpurchase discounts.

 

*Gross Profit*

 

Gross profit decreased$38.2 million, or 25.0%, in the first six months of 2009, compared to the firstsix months of 2008.  Gross profit as apercentage of sales remained flat at 17.8% in the first six months of 2009 andthe first six months of 2008.

 

Grossmargins on Class 8 truck sales decreased to 6.1% in the first six monthsof 2009, from 8.3% in the first six months of 2008.

 

Grossmargins on medium-duty truck sales decreased to 2.8% in the first six months of2009, from 5.6% in the first six months of 2008.

 

Gross margins on usedtruck sales increased to 6.3% in the first six months of 2009, from 0.6% in thefirst six months of 2008.  The decreasein gross margins in the first six months of 2008 was the result of a $5.4million write-down of used truck inventory. Excluding the write-down of used truck inventory, gross margins on usedtruck sales were 7.3% in the first six months of 2008.

 

Gross margins fromthe Company’s parts, service and body shop operations decreased to 39.0% in thefirst six months of 2009, from 41.8% in the first six months of 2008.  Gross profit for the parts, service and bodyshop departments was $82.7 million in the first six months of 2009, compared to$99.4 million in the first six months of 2008.

 

Gross margins on new andused construction equipment sales were 8.8% in the first six months of 2009,compared to 9.8% in the first six months of 2008.

 

Gross margins from trucklease and rental sales decreased to 12.0% in the first six months of 2009, fromapproximately 14.2% in the first six months of 2008.

 

Finance and insurancerevenues 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 expensesdecreased $13.5 million, or 11.7%, in the first six months of 2009,compared to the first six months of 2008. SG&A expenses as a percentage of sales was 16.0% in the first sixmonths of 2009 and 13.5% in the first six months of 2008.

 

*Interest Expense, Net*

 

Net interest expensedecreased $0.6 million, or 15.4%, in the first six months of 2009,compared to the first six months of 2008.

 

*Income before Income Taxes*

 

Incomebefore income taxes decreased $25.0 million, or 99.4%, in the first six months of 2009, compared tothe first six months of 2008.

 

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*Provision for Income Taxes*

 

Income taxes decreased $10.6million, or 112.7%,in the first six months of 2009, compared to the first six months of 2008.  The Company provided for taxes at a 39.0%rate in the first sixmonths of 2009, compared to a rate of 37.5% in the first six months of 2008.  The tax rate in the first six months of 2009 wasoffset $1.3 million by tax credits for sales of alternative fuel vehicles totax-exempt entities.

 

**Liquidity and Capital Resources**

 

The Company’s short-term cash requirements areprimarily for working capital, inventory financing, the improvement andexpansion of existing facilities, the implementation of SAP enterprise softwareand dealership management system, and the construction of new facilities.  Historically, these cash requirements havebeen met through the retention of profits and borrowings under our floor planarrangements. As of June 30, 2009, the Company had working capital ofapproximately $160.5 million, including $121.0 million in cash available tofund our operations.  The Companybelieves that these funds are sufficient to meet its short-term and long-termcash requirements.

 

The Company may requestworking capital advances in the minimum amount of $100,000 under its Amendedand Restated Wholesale Security Agreement with GE Capital, its primary trucklender.  However, such working capitaladvances may not cause the total indebtedness owed GE Capital to exceed an amountequal to the wholesale advances made against the then current inventory lessany payment reductions then due.  Therewere no working capital advances outstanding under this agreement at June 30,2009.

 

The Company has asecured line of credit that provides for a maximum borrowing of $8.0million.  There were no advancesoutstanding under this secured line of credit at June 30, 2009, however,$6.1 million was pledged to secure various letters of credit related toself-insurance products, leaving $1.9 million available for future borrowingsas of June 30, 2009.

 

The Company’s long-term realestate debt agreements require the Company to satisfy various financial ratios such as the debt toworth ratio and the fixed charge coverage ratio.  The Company’s floor plan financing agreementwith GE Capital does not contain financial covenants.  At June 30, 2009, the Company was incompliance with all debt covenants.  TheCompany does not anticipate any breach of the covenants in the foreseeablefuture.

 

TitanTechnology Partners is currently implementing SAP enterprise software and a newSAP dealership management system for the Company.  The total cost of the SAP software andimplementation is estimated to be approximately $32.0 million.  As of June 30, 2009, the Company hadcumulative expenditures of $24.5 million related to the SAP project.  The Company expects to spend approximately$4.0 million to $4.5 million related to the SAP project during the remainder of2009.

 

TheCompany is currently constructing a new facility for its Rush Truck Centerlocation in Oklahoma City, Oklahoma at an estimated cost of $12.0 million.  As of June 30, 2009, the Company hadexpenditures of $8.6 million related to the construction of the new facility.

 

TheCompany also expects to make capital expenditures for recurring items such ascomputers, shop tools and equipment and vehicles of approximately $8.0 millionduring 2009.  As of June 30, 2009,the Company had expenditures of approximately $2.7 million related to theserecurring items.

 

On July 22, 2008, the Company’s Board ofDirectors approved a stock repurchase program authorizing the Company torepurchase, from time to time, up to an aggregate of $20,000,000 of its sharesof Class A common stock and/or Class B common stock.  Repurchases will be made at times and inamounts as the Company deems appropriate and will be made through open markettransactions, privately negotiated transactions and other lawful means. Themanner, timing and amount of any repurchases will be determined by the Companybased on an evaluation of market conditions, stock price and other factors,including those related to the ownership requirements of its dealershipagreements with manufacturers it represents. The stock repurchase program hasno expiration date and may be suspended or discontinued at any time.  While the stock repurchase program does notobligate 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 Bcommon stock.  As of June 30, 2009,the Company has repurchased 1,639,843 shares of its Class B common stockat a cost of $17.9 million, none of which occurred during the second quarter of2009.

 

The Company currently anticipates funding its capitalexpenditures relating to the SAP software and implementation, construction ofnew Rush Truck Centers, recurring expenses and any stock repurchases throughits operating 

 

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cash flow.  The Company expectsto finance 80% of the appraised value of newly constructed Rush Truck Centersupon completion, which will increase the Company’s cash and cash equivalents bythat amount.

 

TheCompany has no other material commitments for capital expenditures as of June 30,2009, except that the Companywill continue to purchase vehicles for its lease and rental division andauthorize capital expenditures for improvement and expansion of its dealershipfacilities based on market opportunities. The Company expects to purchase trucks worth approximately $30.0million for its leasing operations in 2009, depending on customer demand, whichit will finance.

 

**Cash Flows**

 

Cashand cash equivalents decreased by $25.5 million during the six months ended June 30,2009, and decreased by $28.9 million during the six months ended June 30,2008.  The major components of thesechanges are discussed below.

 

*Cash Flows from OperatingActivities*

 

Cash flows from operating activities include net income adjusted fornon-cash items and the effects of changes in working capital.  During the first six months of 2009,operating activities resulted in net cash provided by operations of $78.0million.  Cash provided by operatingactivities was primarily impacted by the decrease in inventories which wasoffset by the decrease in accounts payable and accrued expenses.  During the first six months of 2008,operating activities resulted in net cash provided by operations of $37.5million.

 

Cash flows from operating activities asadjusted for all draws and (payments) on floor plan notes (“Adjusted Cash Flowsfrom Operating Activities”) was $14.0 million for the six months ended June 30,2009, and $45.9 million for the six months ended June 30, 2008.  Generally, all vehicle and constructionequipment dealers finance the purchase of vehicles and construction equipmentwith floor plan borrowings, and our agreements with our floor plan providersrequire us to repay amounts borrowed for the purchase of such vehicles andequipment immediately after they are sold. As a result, changes in floor plan notes payable are directly linked tochanges in vehicle and construction equipment inventory.  However, as reflected in our consolidatedstatements of cash flows, changes in inventory are recorded as cash flows fromoperating activities, and draws and (payments) on floor plan notes are recordedas cash flows from financing activities.

 

Management believes that information about AdjustedCash Flows from Operating Activities provides investors with a relevant measureof liquidity and a useful basis for assessing the Company’s ability to fund itsactivities and obligations from operating activities.  Floor plan notes payable is classified as acurrent liability and, therefore, is included in the working capital amountsdiscussed above.

 

Adjusted Cash Flows from Operating Activitiesis a non-GAAP financial measure and should be considered in addition to, andnot as a substitute for, cash flows from operating activities as reported inour consolidated statements of cash flows in accordance with U.S. GAAP.  Additionally, this measure may vary amongother companies; thus, Adjusted Cash Flows from Operating Activities aspresented herein may not be comparable to similarly titled non-GAAP financialmeasures of other companies.  Set forthbelow is a reconciliation of cash flow from operating activities as reported inour consolidated statement of cash flows, as if all changes in floor plan notespayable were classified as an operating activity (in thousands).

 
| ** **                                               | ** ** | **Six Months Ended********June 30,** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                               | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| Net cash  provided by operating activities (GAAP)        |       | $                                         | 77,995     |   | $ | 37,517 |   |
| (Draws) payments  on floor plan notes payable            |       | (64,022                                   | )          | 8,387 |   |
|                                                     |       |                                      |       |   |   |
| Adjusted Cash Flows from Operating Activities (Non-GAAP) |       | $                                         | 13,973     |   | $ | 45,904 |   |

 

*Cash Flows from InvestingActivities*

 

Cashflows used in investing activities consist primarily of cash used for capitalexpenditures.  During the first sixmonths of 2009, cash used in investing activities was $23.4 million.  Capital expenditures consisted of purchasesof property and equipment, improvements to our existing dealership facilitiesand construction of our new facility in Oklahoma City, Oklahoma of $23.5million. Property and equipment purchases during the first six months of 2009consisted of $6.0 million for additional units for the rental and leasingoperations, which was directly offset by borrowings of long-term debt.  The Company expects to purchase trucks worthapproximately $30.0 million for its leasing operations in 2009, depending oncustomer demand, all of which will be financed. During 2009, the Company expects to make capital expenditures for

 

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recurringitems such as computers, shop equipment and vehicles of approximately $8.0million in addition to $7.0 million to $8.0 million for the SAP softwareimplementation described above.

 

Duringthe first six months of 2008, cash used in investing activities was $65.8million.  The Company purchasedinvestments of $355.6 million which was offset by proceeds from the sale ofthese investments of $325.3 million.  SeeNote 6 of Notes to Consolidated Financial Statements for an explanation ofthese investments.  Capital expendituresconsisted of purchases of property and equipment, and improvements to ourexisting dealership facilities of $21.0 million. Property and equipmentpurchases during the first six months of 2008 consisted of $6.2 million foradditional units for the rental and leasing operations, which was directlyoffset by borrowings of long-term debt.

 

*Cash Flows from FinancingActivities*

 

**Cash flows from financingactivities include borrowings and repayments of long-term debt and net proceedsof floor plan notes payable.  Cash usedin 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 oflong-term debt of $20.6 million during the first six months of 2009.  The Company had net payments of floor plannotes payable of $64.0 million during the first six months of 2009.  The borrowings of long-term debt wereprimarily related to units for the rental and leasing operations.**

 

**Cash used in financing activitieswas $0.6 million during the first six months of 2008.  The Company had borrowings of long-term debtof $11.7 million and repayments of long-term debt of $19.6 million during thefirst six months of 2008.   The Companyhad net draws of floor plan notes payable of $8.4 million during the first sixmonths of 2008.  The borrowings oflong-term debt were primarily related to refinancing of real estate andfinancing of lease and rental fleet.**

 

Substantially all of the Company’s truck purchases are made on termsrequiring payment within 15 days or less from the date the trucks are invoicedfrom the factory.  Effective August 1,2007, the Company entered into an Amended and Restated Wholesale SecurityAgreement with GE Capital.  Interestunder the floor plan financing agreement is payable monthly and the rate variesfrom LIBOR plus 1.15% to LIBOR plus 1.50% depending on the average aggregatemonth-end balance of debt.  The Companyfinances substantially all of the purchase price of its new truck inventory,and the loan value of its used truck inventory under the floor plan financingagreement with GE Capital, under which GE Capital pays the manufacturerdirectly with respect to new trucks. The Company makes monthly interestpayments to GE Capital on the amount financed, but is not required to commenceloan principal repayments on any vehicle until such vehicle has been floorplanned for 12 months or is sold.  The floor plan financing agreement allowsfor prepayments and working capital advances with monthly adjustments to theinterest due on outstanding advances.  On June 30,2009, the Company had approximately $203.7 million outstanding under its floorplan financing agreement with GE Capital.

 

Substantially all of the Company’s new constructionequipment purchases are financed by John Deere and JPMorgan Chase (“Chase”). The agreement with John Deere provides an interest free financing period afterwhich time the amount financed is required to be paid in full.  Whenconstruction equipment is sold prior to the expiration of the interest freefinance period, the Company is required to repay the principal withinapproximately ten days of the sale. If the construction equipment financed byJohn Deere is not sold within the interest free finance period, it istransferred to the Chase floor plan arrangement.  The Company makesprincipal payments for sold new and used construction equipment to Chase on the15th day of each month.  New and usedconstruction equipment is financed to a maximum of book value under a floorplan arrangement with Chase.  The Company makes monthly interest paymentson the amount financed and is required to commence loan principal repayments onconstruction equipment as book value is reduced.  Principal payments forsold used construction equipment are made to Chase no later than the 15th day of eachmonth following the sale. The loans are collateralized by a lien on theconstruction equipment.  As of June 30, 2009, the Company’s floorplan arrangement with Chase permitted the financing of up to $20.0 million inconstruction equipment.  On June 30, 2009, the Company had $1.7million outstanding under its floor plan financing arrangements with John Deereand $13.3 million outstanding under its floor plan financing arrangement withChase.

 

*Backlog*

 

OnJune 30, 2009, the Company’s backlog of truck orders was approximately$116.6 million as compared to a backlog of truck orders of approximately $220.9million on June 30, 2008. The Company includes only confirmed orders inits backlog.  The delivery time for a custom-ordered truck variesdepending on the truck specifications and demand for the particular modelordered; however, due to the decreased demand for trucks, delivery times forheavy-duty trucks have decreased significantly from delivery times duringperiods of peak demand.  As a result,purchasers of heavy-duty trucks currently do not need to place orders severalmonths in advance.  The Company sells themajority of its new trucks by customer special order, with the remainder soldout of inventory. Orders from a number of the Company’s major fleetcustomers are included in the Company’s backlog as of June 30, 2009.

 

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*Seasonality*

 

The Company’s heavy-dutytruck business is moderately seasonal. Seasonal effects on new truck salesrelated to the seasonal purchasing patterns of any single customer type aremitigated by the diverse geographic locations of our dealerships and theCompany’s diverse customer base, including regional and national fleets, localmunicipalities, corporations and owner operators. However, truck parts andservice operations historically have experienced higher sales volumes in thesecond and third quarters.

 

Seasonal effects in the construction equipment business are primarilydriven by the weather.  Seasonal effectson construction equipment sales related to the seasonal purchasing patterns ofany single customer type are mitigated by the Company’s diverse customer basethat includes contractors for residential and commercial construction, utilitycompanies, federal, state and local government agencies, and variouspetrochemical, industrial and material supply type businesses that requireconstruction equipment in their daily operations.

 

## *Cyclicality*

 

The Company’s business isdependent on a number of factors relating to general economic conditions,including fuel prices, interest rate fluctuations, economic recessions,environmental and other government regulations and customer business cycles.Unit sales of new trucks have historically been subject to substantial cyclicalvariation based on these general economic conditions. According to datapublished by A.C.T. Research, in recent years total domestic retail sales ofnew Class 8 trucks have ranged from a low of approximately 140,000 in 2001and 2008 to a high of approximately 291,000 in 2006.  Through geographic expansion, concentrationon higher margin parts and service operations and diversification of itscustomer base, the Company believes it can reduce the negative impact on theCompany’s earnings of cyclical trends affecting the heavy-duty truck industry.

 

##### *Environmental Standards and Other GovernmentalRegulations*

 

Ouroperations are subject to numerous federal, state and local laws andregulations, including laws and regulations designed to protect the environmentby regulating the discharge of materials into the environment. EPA emissionguidelines have traditionally had a major impact on our operations.

 

EPAemissions guidelines regarding nitrous oxides are scheduled to go into effectfor all diesel engines built subsequent to January 1, 2010.  Based on current economic and marketconditions, the Company does not expect a strong pre-buy of Class 8 trucksto occur in 2009. The magnitude of any pre-buy will belargely dependent upon general economic conditions in the U.S. through theremainder of 2009.

 

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**ITEM 3.Quantitative and Qualitative Disclosures about Market Risk.**

 

Market risk, includinginterest rate risk and other relevant market rate or price risks, representsthe risk of loss that may impact the financial position, results of operations,or cash flows of the Company.

 

**The Company is exposed to some market risk throughinterest rates related to our floor plan**financing agreements, variable rate debt and discount ratesrelated to finance sales.  Floor planborrowings are based on LIBOR and are used to meet working capital needs.  As of June 30, 2009, the Company hadfloor plan borrowings of approximately $218.7 million.  Assuming an increase or decrease in LIBOR of100 basis points, annual interest expense could correspondingly increase ordecrease by approximately $2.2 million. The Company provides all customer financing opportunities to variousfinance providers. The Company receives all finance charges in excess of anegotiated discount rate from the finance providers in the month following thedate of the financing. The negotiated discount rate is variable, thus subjectto interest rate fluctuations. This interest rate risk is mitigated by theCompany’s ability to pass discount rate increases to customers through higherfinancing rates.

** **

**The Company is also exposed to some market riskthrough interest rates related to the investment of our current cash and cashequivalents which totaled $121.0 million on June 30, 2009.  These funds are generally invested as aprepayment against our floor plan financing debt or in variable interest rateinstruments in accordance with the Company’s investment policy.  As such instruments mature and the funds arereinvested, we are exposed to changes in market interest rates. This risk ismitigated by management’s ongoing evaluation of the best investment ratesavailable for current and noncurrent high quality investments.  If market interest rates were to decreaseimmediately and uniformly to yield 0%, the Company’s annual earnings on cashand cash equivalents could correspondingly decrease by approximately $255,000.**

** **

In the past, the Company invested in interest-bearingshort-term investments consisting of investment-grade auction rate securitiesclassified as available-for-sale.  As aresult of the recent liquidity issues experienced in the global credit andcapital markets, auctions for investment grade securities held by the Companyhave failed.  The auction rate securitiescontinue to pay interest in accordance with the terms of the underlyingsecurity; however, liquidity will be limited until there is a successfulauction or until such time as other markets for these investments develop.

** **

As of June 30,2009, the Company holds $7.6 million of auction rate securities withunderlying tax-exempt municipal bonds with stated maturities of 22 years.  Given the current market conditions in theauction rate securities market, if the Company determines that the fair valueof these securities has temporarily decreased by 10%, the Company’s equitycould correspondingly decrease by approximately $0.8 million.  If it is determined that the fair value ofthese securities is other-than-temporarily impaired by 10%, the Company couldrecord a loss on its Consolidated Statements of Income of approximately $0.8million.  For further discussion of therisks related to our auction rate securities, see Note 6 — Investments of theNotes to Consolidated Financial Statements and Item 1A — Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31,2008 (the “2008 Annual Report”).

** **

**The Company has not used derivative financialinstruments in our investment portfolio.**

** **

#### **ITEM 4.Controls and Procedures.**

 

The Company, under thesupervision and with the participation of management, including the ChiefExecutive Officer and Chief Financial Officer, evaluated the effectiveness ofthe Company’s disclosure controls and procedures as of the end of the periodcovered by this report.  Based on thatevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures were effective as of June 30,2009 to provide reasonable assurance that information required to be disclosedin 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 theSecurities and Exchange Commission’s rules and forms, and (ii) isaccumulated and communicated to Company management, including the ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

 

There has been no changein the Company’s internal control over financial reporting that occurred duringthe three months ended June 30, 2009 that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

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**PART II.  OTHER INFORMATION**

 

**ITEM 1. LegalProceedings.**

 

Fromtime to time, we are involved in litigation arising out of the Company’soperations 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, orclaim for which indemnification is not available, could have a material adverseeffect on the Company’s financial condition or results of operations. Webelieve that there are no claims or litigation pending, the outcome of whichcould have a material adverse effect on the Company’s financial position orresults of operations. However, due to the inherent uncertainty of litigation,there can be no assurance that the resolution of any particular claim orproceeding would not have a material adverse effect on the Company’s financialcondition or results of operations for the fiscal period in which suchresolution occurred.

 

**ITEM 1A. Risk Factors.**

 

While we attemptto identify, manage and mitigate risks and uncertainties associated with ourbusiness to the extent practical under the circumstances, some level of riskand uncertainty will always be present. Item 1A of the 2008 Annual Report describes some of the risks anduncertainties associated with our business that have the potential tomaterially affect our business, financial condition or results of operations.

 

There has been nomaterial change in our risk factors disclosed in the 2008 Annual Report.

 

**ITEM2.  Unregistered Sales of EquitySecurities and Use of Proceeds.**

 

The Company didnot make any unregistered sales of equity securities during the second quarterof 2009, nor did it repurchase any shares of its Class A Common Stock or Class BCommon Stock during the second quarter of 2009.

 

**ITEM3.  Defaults Upon Senior Securities.**

 

Not Applicable

 

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**ITEM4.  Submission of Matters to a Vote ofSecurity Holders.**

 

The following matters were voted upon atthe Annual Meeting of Shareholders held on May 19, 2009 (the “2009 AnnualMeeting”), and received the votes set forth below:

 

1.                                       All of thefollowing persons nominated were reelected to serve as directors and receivedthe number of votes set forth opposite their respective names:

** **
| **Name**                     | ** ** | **Number of Votes********FOR** | ** ** | **Number of Votes********WITHHELD** |
|------------------------------|------------|--------------------------------|------------|-------------------------------------|
|                         |       |                           |       |                                |
| W.  Marvin Rush              |       | 10,769,048                     |       | 400,532                             |
| W.M.  “Rusty” Rush |       | 10,769,041                     |       | 400,538                             |
| Ronald  J. Krause            |       | 9,108,992                      |       | 2,060,587                           |
| James  C. Underwood          |       | 9,135,172                      |       | 2,034,407                           |
| Harold  D. Marshall          |       | 9,134,559                      |       | 2,035,020                           |
| Thomas  A. Akin              |       | 9,134,701                      |       | 2,034,878                           |
| Gerald  R. Szczepanski       |       | 10,978,805                     |       | 190,774                             |

 

2.                                       A proposal toratify the appointment of Ernst & Young LLP as the Company’sindependent registered public accounting firm for the 2009 fiscal year received11,141,403 votes FOR and 24,803 votes AGAINST, with 3,373 abstentions.

 

Thetwo proposals submitted at the 2009 Annual Meeting received more than thenumber of favorable votes required for approval, and were therefore duly andvalidly approved by the Company’s shareholders.

 

**ITEM5.  Other Information.**

 

**Effective August 7, 2009,the Company’s Board of Directors approved an amendment and restatement of theCompany’s Amended and Restated Bylaws (as amended and restated, the “RestatedBylaws”).  The Restated Bylaws wereadopted to clarify that the voting standard for the election of directors is aplurality voting standard, which has been the Company’s historical votingstandard in elections of directors and is the default standard for the electionof directors under Texas law.  Inparticular, the amendment clarifies Section 2.6 by providing thatdirectors are to be elected by a**plurality of the votes cast by the holders of shares entitled to votein the election of directors at a meeting of shareholders at which a quorum ispresent.  Because this Quarterly Report on Form 10-Qis being filed within four days from the effective date of the Restated Bylaws,the amendment and restatement is being disclosed hereunder rather than underItem 5.03 of a Current Report on Form 8-K.

** **

**The foregoing description of theRestated Bylaws is qualified in its entirety by reference to the RestatedBylaws, a copy of which is filed as Exhibit 3.2 to this Quarterly Reporton Form 10-Q, and is incorporated herein by reference.**

 

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***ITEM 6.  Exhibits.***

 
| **Exhibit  Number** | ** ** | **Exhibit Title**                                                                                                                                                                                                                                   |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                 |       | Restated Articles of  Incorporation of Rush Enterprises, Inc. (incorporated herein by  reference to Exhibit 3.1 of the Company’s 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                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                     |
| 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.                                                                                                                |

 

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*   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 theundersigned thereunto duly authorized.

 
|   |                  |   | RUSH  ENTERPRISES, INC.                      |
|--------|-----------------------|--------|----------------------------------------------|
|   |                  |   |
|   |                  |   |
| Date:  | August 10,  2009 |   | By:                                          | /S/ W.M. “RUSTY” RUSH |
|   |                  |   | W.M.  “Rusty” Rush                 |
|   |                  |   | President  and Chief Executive Officer       |
|   |                  |   | (Principal Executive Officer)                |
|   |                  |   |                                         |
| Date:  | August 10,  2009 |   | 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**                                                                                                                                  |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2*                |       | Rush  Enterprises, Inc. Amended and Restated Bylaws                                                                                                |
| 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.               |

 

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*   filed herewith

**furnished herewith

 

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