Table ofContents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

###### **For the quarterlyperiod ended March 31, 2009**

###### ** **

**OR**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the transition period from                to                **

 

**Commission File Number 0-20797**

 

**RUSHENTERPRISES, INC.**

(Exact name of registrant as specified in its charter)

 

| **Texas**                       | ** ** | **74-1733016**                       |
|---------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of |       | (I.R.S. Employer Identification No.) |
| incorporation or organization)  |       |                                 |

 

**555 I.H. 35 South, Suite 500**

**New Braunfels, Texas 78130**

(Address of principal executive offices)

(Zip Code)

 

**(830) 626-5200**

(Registrant’s telephone 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

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate website, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes o No o

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “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

 

Indicatedbelow is the number of shares outstanding of each of the issuer’s classes ofcommon stock, as of May 7, 2009.

 
| ** **                                | ** ** | **Number of**   | ** ** |
|-------------------------------------------|------------|-----------------|------------|
| ** **                                | ** ** | **Shares**      | ** ** |
| **Title of Class**                        | ** ** | **Outstanding** | ** ** |
| Class A Common Stock, $.01 Par Value |       | 26,331,068      |       |
| Class B Common Stock, $.01 Par Value |       | 10,685,894      |       |

 

 

 

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

###### ** **

**INDEX**

 
| ** **                              | ** **                                                                                                    | **Page** |
|-----------------------------------------|---------------------------------------------------------------------------------------------------------------|----------|
| **PART I.  FINANCIAL INFORMATION** |                                                                                                          |
|                                    |                                                                                                          |     |
| Item  1.                                | Financial Statements                                                                                          |     |
|                                    |                                                                                                          |     |
|                                    | Consolidated  Balance Sheets - March 31, 2009 (unaudited) and December 31, 2008                     | 3        |
|                                    |                                                                                                          |     |
|                                    | Consolidated  Statements of Income - For the Three Months Ended March 31, 2009 and  2008 (unaudited)     | 4        |
|                                    |                                                                                                          |     |
|                                    | Consolidated  Statements of Cash Flows - For the Three Months Ended March 31, 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                   | 10       |
|                                    |                                                                                                          |     |
| Item 3.                                 | Quantitative  and Qualitative Disclosures About Market Risk                                                   | 21       |
|                                    |                                                                                                          |     |
| Item 4.                                 | Controls and Procedures                                                                                       | 21       |
|                                    |                                                                                                          |     |
| **PART II. OTHER  INFORMATION**    |                                                                                                          |
|                                    |                                                                                                          |     |
| Item 1.                                 | Legal Proceedings                                                                                             | 22       |
|                                    |                                                                                                          |     |
| Item  1A.                               | Risk Factors                                                                                                  | 22       |
|                                    |                                                                                                          |     |
| Item 2.                                 | Unregistered  Sales of Equity Securities and Use of Proceeds                                                  | 22       |
|                                    |                                                                                                          |     |
| Item 3.                                 | Defaults Upon  Senior Securities                                                                              | 22       |
|                                    |                                                                                                          |     |
| Item 4.                                 | Submission of  Matters to a Vote of Security Holders                                                          | 22       |
|                                    |                                                                                                          |     |
| Item 5.                                 | Other Information                                                                                             | 22       |
|                                    |                                                                                                          |     |
| Item  6.                                | Exhibits                                                                                                      | 23       |
|                                    |                                                                                                          |     |
| **SIGNATURES**                          | 24                                                                                                            |

 

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

#### ** **

**Item 1. Financial Statements.**

 

#### **RUSH ENTERPRISES, INC. ANDSUBSIDIARIES**

### **CONSOLIDATED BALANCE SHEETS**

# **MARCH 31, 2009 ANDDECEMBER 31, 2008**

**(In Thousands, Except Shares)**

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                                                                                                                                                                                                                                                                           |       |               |       |                  |       |
| Current assets:                                                                                                                                                                                                                                                                                                                                                                                                      |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                            |       | $                  | 131,614    |                  | $          | 146,411 |   |
| Investments                                                                                                                                                                                                                                                                                                                                                                                                          |       | 7,575              |       | 7,575                 |       |
| Accounts receivable, net                                                                                                                                                                                                                                                                                                                                                                                             |       | 52,557             |       | 55,274                |       |
| Inventories, net                                                                                                                                                                                                                                                                                                                                                                                                     |       | 325,985            |       | 362,234               |       |
| Prepaid expenses and other                                                                                                                                                                                                                                                                                                                                                                                           |       | 2,460              |       | 3,369                 |       |
| Deferred income taxes, net                                                                                                                                                                                                                                                                                                                                                                                           |       | 7,271              |       | 6,730                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                 |       |               |       |                  |       |
| Total current assets                                                                                                                                                                                                                                                                                                                                                                                                 |       | 527,462            |       | 581,593               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                 |       |               |       |                  |       |
| Property and equipment, net                                                                                                                                                                                                                                                                                                                                                                                          |       | 333,907            |       | 332,147               |       |
| Goodwill, net                                                                                                                                                                                                                                                                                                                                                                                                        |       | 141,910            |       | 141,904               |       |
| Other assets, net                                                                                                                                                                                                                                                                                                                                                                                                    |       | 1,122              |       | 1,146                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                 |       |               |       |                  |       |
| **Total assets**                                                                                                                                                                                                                                                                                                                                                                                                     |       | $                  | 1,004,401  |                  | $          | 1,056,790 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                 |       |               |       |                  |       |
| **Liabilities and shareholders’ equity**                                                                                                                                                                                                                                                                                                                                                                        |       |               |       |                  |       |
| Current liabilities:                                                                                                                                                                                                                                                                                                                                                                                                 |       |               |       |                  |       |
| Floor plan notes payable                                                                                                                                                                                                                                                                                                                                                                                             |       | $                  | 245,938    |                  | $          | 282,702 |   |
| Current maturities of long-term debt                                                                                                                                                                                                                                                                                                                                                                                 |       | 43,754             |       | 37,665                |       |
| Current maturities of capital lease obligations                                                                                                                                                                                                                                                                                                                                                                      |       | 4,046              |       | 3,454                 |       |
| Trade accounts payable                                                                                                                                                                                                                                                                                                                                                                                               |       | 24,902             |       | 31,530                |       |
| Accrued expenses                                                                                                                                                                                                                                                                                                                                                                                                     |       | 40,536             |       | 49,125                |       |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                                                                            |       | 359,176            |       | 404,476               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                 |       |               |       |                  |       |
| Long-term debt, net of current maturities                                                                                                                                                                                                                                                                                                                                                                            |       | 157,834            |       | 172,011               |       |
| Capital lease obligations, net of current maturities                                                                                                                                                                                                                                                                                                                                                                 |       | 14,277             |       | 11,366                |       |
| Deferred income taxes, net                                                                                                                                                                                                                                                                                                                                                                                           |       | 52,550             |       | 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; 26,482,069 class A shares  and 12,325,737 class B shares issued and 26,330,443 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 |       | 386                |       | 386                   |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                                           |       | 185,478            |       | 183,818               |       |
| Treasury stock, at cost: 1,639,843 shares                                                                                                                                                                                                                                                                                                                                                                            |       | (17,948            | )          | (17,948               | )          |
| Retained earnings                                                                                                                                                                                                                                                                                                                                                                                                    |       | 252,648            |       | 249,785               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                 |       |               |       |                  |       |
| Total shareholders’ equity                                                                                                                                                                                                                                                                                                                                                                                      |       | 420,564            |       | 416,041               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                 |       |               |       |                  |       |
| **Total liabilities and shareholders’ equity**                                                                                                                                                                                                                                                                                                                                                                  |       | $                  | 1,004,401  |                  | $          | 1,056,790 |   |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

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# **RUSHENTERPRISES, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF INCOME**

**(In Thousands, Except PerShare Amounts)**

**(Unaudited)**

** **
| ** **                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------|------------|----------------------------------------|------------|
| ** **                               | ** ** | **2009**                               | ** ** | **2008** | ** ** |
|                                     |       |                                   |       |   |   |
| **Revenues:**                            |       |                                   |       |   |   |
| New and used truck sales                 |       | $                                      | 195,988    |   | $ | 251,426 |   |
| Parts and service                        |       | 109,218                                |       | 117,580 |   |
| Construction equipment sales             |       | 7,003                                  |       | 16,939 |   |
| Lease and rental                         |       | 13,476                                 |       | 13,024 |   |
| Finance and insurance                    |       | 1,715                                  |       | 3,604 |   |
| Other                                    |       | 1,686                                  |       | 1,285 |   |
|                                     |       |                                   |       |   |   |
| Total revenue                            |       | 329,086                                |       | 403,858 |   |
|                                     |       |                                   |       |   |   |
| **Cost of products sold:**               |       |                                   |       |   |   |
| New and used truck sales                 |       | 182,827                                |       | 231,037 |   |
| Parts and service                        |       | 66,449                                 |       | 68,640 |   |
| Construction equipment sales             |       | 6,182                                  |       | 15,180 |   |
| Lease and rental                         |       | 11,928                                 |       | 10,822 |   |
|                                     |       |                                   |       |   |   |
| Total cost of products sold              |       | 267,386                                |       | 325,679 |   |
|                                     |       |                                   |       |   |   |
| **Gross profit**                         |       | 61,700                                 |       | 78,179 |   |
|                                     |       |                                   |       |   |   |
| Selling, general and administrative      |       | 52,051                                 |       | 56,945 |   |
|                                     |       |                                   |       |   |   |
| Depreciation and amortization            |       | 3,978                                  |       | 3,875 |   |
|                                     |       |                                   |       |   |   |
| **Operating income**                     |       | 5,671                                  |       | 17,359 |   |
|                                     |       |                                   |       |   |   |
| Interest expense, net                    |       | 1,624                                  |       | 1,927 |   |
|                                     |       |                                   |       |   |   |
| Gain on sale of assets                   |       | 55                                     |       | 49 |   |
|                                     |       |                                   |       |   |   |
| **Income before taxes**                  |       | 4,102                                  |       | 15,481 |   |
|                                     |       |                                   |       |   |   |
| Provision for income taxes               |       | 1,239                                  |       | 5,806 |   |
|                                     |       |                                   |       |   |   |
| **Net income**                           |       | $                                      | 2,863      |   | $ | 9,675 |   |
|                                     |       |                                   |       |   |   |
| **Earnings per share:**                  |       |                                   |       |   |   |
| Earnings per common share — Basic   |       | $                                      | .08        |   | $ | .25 |   |
| Earnings per common share — Diluted |       | $                                      | .08        |   | $ | .25 |   |
|                                     |       |                                   |       |   |   |
| **Weighted average shares outstanding:** |       |                                   |       |   |   |
| Basic                                    |       | 36,991                                 |       | 38,373 |   |
| Diluted                                  |       | 37,274                                 |       | 38,989 |   |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

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**RUSH ENTERPRISES, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(In Thousands)**

**(Unaudited)**

 
| ** **                                                                                       | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                       | ** ** | **March 31,**     | ** ** |
| ** **                                                                                       | ** ** | **2009**               | ** ** | **2008** | ** ** |
|                                                                                             |       |                   |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                            |       |                   |       |   |   |
| Net Income                                                                                       |       | $                      | 2,863      |   | $ | 9,675 |   |
| Adjustments to reconcile net income to net cash provided by (used in)  operating activities:     |       |                   |       |   |   |
| Depreciation and amortization                                                                    |       | 10,071                 |       | 9,212 |   |
| (Gain) on sale of property and equipment                                                         |       | (55                    | )          | (49 | ) |
| Stock-based compensation expense related to employee stock options and  employee stock purchases |       | 1,274                  |       | 1,201 |   |
| (Benefit) provision for deferred income tax expense                                              |       | (887                   | )          | 1,311 |   |
| Excess tax benefits from stock-based compensation                                                |       | (10                    | )          | (207 | ) |
| Change in accounts receivable, net                                                               |       | 2,717                  |       | (9,119 | ) |
| Change in inventories                                                                            |       | 40,152                 |       | 13,643 |   |
| Change in prepaid expenses and other, net                                                        |       | 909                    |       | (500 | ) |
| Change in trade accounts payable                                                                 |       | (6,628                 | )          | (17,468 | ) |
| Change in accrued expenses                                                                       |       | (8,579                 | )          | (19,340 | ) |
|                                                                                             |       |                   |       |   |   |
| Net cash provided by (used in) operating activities                                              |       | 41,827                 |       | (11,641 | ) |
|                                                                                             |       |                   |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                            |       |                   |       |   |   |
| Purchase of investments                                                                          |       | —                 |       | (355,575 | ) |
| Proceeds from the sale of investments                                                            |       | —                 |       | 325,300 |   |
| Acquisition of property and equipment                                                            |       | (10,953                | )          | (6,773 | ) |
| Proceeds from the sale of property and equipment                                                 |       | 61                     |       | 140 |   |
| Change in other assets                                                                           |       | (1                     | )          | (13 | ) |
|                                                                                             |       |                   |       |   |   |
| Net cash (used in) investing activities                                                          |       | (10,893                | )          | (36,921 | ) |
|                                                                                             |       |                   |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                            |       |                   |       |   |   |
| Draws (payments) on floor plan notes payable, net                                                |       | (36,764                | )          | 14,019 |   |
| Proceeds from long-term debt                                                                     |       | 2,685                  |       | 4,436 |   |
| Principal payments on long-term debt                                                             |       | (10,773                | )          | (9,977 | ) |
| Principal payments on capital lease obligations                                                  |       | (1,248                 | )          | (1,401 | ) |
| Issuance of shares relating to employee stock options and employee  stock purchases              |       | 376                    |       | 522 |   |
| Excess tax benefits from stock-based compensation                                                |       | 10                     |       | 207 |   |
| Debt issuance costs                                                                              |       | (17                    | )          | (28 | ) |
|                                                                                             |       |                   |       |   |   |
| Net cash (used in) provided by financing activities                                              |       | (45,731                | )          | 7,778 |   |
|                                                                                             |       |                   |       |   |   |
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS                                                      |       | (14,797                | )          | (40,784 | ) |
|                                                                                             |       |                   |       |   |   |
| CASH AND CASH EQUIVALENTS, beginning of period                                                   |       | 146,411                |       | 187,009 |   |
|                                                                                             |       |                   |       |   |   |
| CASH AND CASH EQUIVALENTS, end of period                                                         |       | $                      | 131,614    |   | $ | 146,225 |   |
|                                                                                             |       |                   |       |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                |       |                   |       |   |   |
| Cash paid during the period for:                                                                 |       |                   |       |   |   |
| Interest                                                                                         |       | $                      | 3,786      |   | $ | 4,417 |   |
| Income taxes, net of refunds                                                                     |       | $                      | (27        | ) | $ | 986 |   |
| Noncash investing activities:                                                                    |       |                   |       |   |   |
| Assets acquired under capital leases                                                             |       | $                      | 4,751      |   | $ | 15 |   |

 

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

 

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**RUSH ENTERPRISES, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited**)

 

**1 — Principles of Consolidation and Basis of Presentation**

 

The interimconsolidated financial statements included herein have been prepared by RushEnterprises, Inc. and its subsidiaries (collectively referred to as the “Company”),without audit, pursuant to the rules and regulations of the Securities andExchange Commission (the “SEC”).  Alladjustments have been made to the accompanying interim consolidated financialstatements, which, in the opinion of the Company’s management, are necessaryfor a fair presentation 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 have been condensed or omittedpursuant to such rules and regulations. It is recommended that these interim consolidated financial statementsbe read in conjunction with the consolidated financial statements and the notesthereto included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2008.  Results ofoperations for interim periods are not necessarily indicative of results thatmay be expected for any other interim periods or the full fiscal year.

 

**2 — Goodwill and Other Intangible Assets**

 

The Companyperforms an annual impairment review of goodwill during the fourth quarter ofeach year.  Management is not aware ofany impairment charge that may currently be required; however, a change ineconomic conditions, if one occurs, could result in an impairment charge infuture periods.

 

**3 — Commitments and Contingencies**

 

The Company is contingently liable to finance companies for certainnotes initiated on behalf of such finance companies related to the sale oftrucks and construction equipment.  Themajority of finance contracts are sold without recourse against the Company.For those finance contracts sold with recourse, the liability associated with amajority of such contracts is generally limited to 5% to 20% of the outstandingamount of each note initiated on behalf of the finance company. However, theCompany has a finance program that accepts 100% liability, with somerestrictions, for the outstanding amount of each note initiated on behalf ofthe finance company.  In order for acontract to be accepted into this finance program, a customer must meet strictcredit requirements or maintain a significant equity position in the truckbeing financed; consequently, less than 1% of the Company’s portfolio balancerelated to finance contracts sold by the Company are under this 100% liabilityfinance program and the Company does not expect to finance a significantpercentage of its truck sales under this 100% liability finance program in thefuture. The Company provides for an allowance for repossession losses and earlyrepayment penalties that it may be liable for under finance contracts sold.

 

The Company is involved in various claims and legal actions arising inthe ordinary course of business. The Company believes it is unlikely that thefinal outcome of any of the claims or proceedings to which the Company is aparty would have a material adverse effect on the Company’s financial positionor results of operations; however, due to the inherent uncertainty oflitigation, there can be no assurance that the resolution of any particularclaim or proceeding would not have a material adverse effect on the Company’sresults of operations for the fiscal period in which such resolution occurred.

 

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**4 — Earnings Per Share**

 

The following table sets forth the computation of basic and dilutedearnings per share:

 
| ** **                                                                                            | ** ** | **Three Months Ended**  | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                            | ** ** | **March 31, 2009** | ** ** | **March 31, 2008** | ** ** |
| Numerator:                                                                                            |       |                    |       |   |   |
| Numerator for basic and diluted earnings per share, net income  available to common shareholders      |       | $                       | 2,863,000  |   | $ | 9,675,000 |   |
|                                                                                                  |       |                    |       |   |   |
| Denominator:                                                                                          |       |                    |       |   |   |
| Denominator for basic earnings per share, adjusted weighted average  shares outstanding               |       | 36,991,417              |       | 38,373,144 |   |
| Effect of dilutive securities:                                                                        | ** ** | ** **              | ** ** | ** ** | ** ** |
| Employee and Director stock options and restricted share awards                                       |       | 282,434                 |       | 615,757 |   |
| Denominator for diluted earnings per share, adjusted weighted average  shares and assumed conversions |       | 37,273,851              |       | 38,988,901 |   |
|                                                                                                  |       |                    |       |   |   |
| Basic earnings per common share                                                                       |       | $                       | .08        |   | $ | .25 |   |
|                                                                                                  |       |                    |       |   |   |
| Diluted earnings per common share and common share equivalents                                        |       | $                       | .08        |   | $ | .25 |   |

 

Options to purchase shares of common stock that wereoutstanding for the three months ended March 31, 2009 and 2008 that were notincluded in the computation of diluted earnings per share because the exerciseprices were greater than the average market prices of the common shares are asfollows:

 
| ** **                     | ** ** | **March 31, 2009** | ** ** | **March 31, 2008** | ** ** |
|--------------------------------|------------|-------------------------|------------|-------------------------|------------|
| Options                        |       | 2,068,615               |       | 157,500                 |       |
|                           |       |                    |       |                    |       |
| Total anti-dilutive securities |       | 2,068,615               |       | 157,500                 |       |

 

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

 

*Valuation and Expense Informationunder SFAS 123(R)*

 

The Companyaccounts for stock-based compensation in accordance with Statement of FinancialAccounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS123(R)”), which requires the measurement and recognition of compensationexpense for all share-based payment awards made to the Company’s employees anddirectors including employee stock options, restricted share awards and employeestock purchases related to the Employee Stock Purchase Plan based on estimatedfair values.  Stock-based compensationexpense, calculated using the Black-Scholes option-pricing model and includedin selling, general and administrative expense, was $1.3 million for the threemonths ended March 31, 2009 and $1.2 million for the three months ended March 31,2008.  As of March 31, 2009, there was$5.6 million of total unrecognized compensation cost related to non-vestedshare-based compensation arrangements granted under the Rush Enterprises, Inc.Long-Term Incentive Plan to be recognized over a weighted-average period of 3.2years.

 

**6****—****Investments**

 

The Company assesses its investments for impairmenton a quarterly basis.  If the investmentsare deemed to be impaired, the Company determines whether the impairment istemporary or other than temporary.  Ifthe impairment is deemed to be temporary, the Company records an unrealizedloss in other comprehensive income.  Ifthe impairment is deemed other than temporary, the Company records theimpairment in the Company’s consolidated statement of income.

 

The Company historically invested ininterest-bearing short-term investments primarily consisting ofinvestment-grade auction rate securities classified as available-for-sale andreported at fair value.  These types ofinvestments were designed to provide liquidity through an auction process thatreset the applicable interest rates at predetermined periods ranging from 1 to35 days.  This reset mechanism was intendedto allow existing investors to continue to own their respective interest in theauction rate security or to gain immediate liquidity by selling their interestsat par.

 

As a result of the liquidity issues experienced inthe global capital markets, auctions for investment grade securities held bythe Company have failed.  An auctionfails when there is insufficient demand. However, a failed auction does not represent a default by theissuer.  The auction rate securitiescontinue to pay interest in accordance with the terms of the 

 

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underlying security; however, liquidity will belimited until there is a successful auction or until such time as other marketsfor these investments develop.  TheCompany believes that its auction rate securities will liquidate within thenext twelve months and has classified them as a current asset on itsconsolidated balance sheet.  The Companyhas the intent and ability to hold these auction rate securities untilliquidity returns to the market.  TheCompany does not believe that the lack of liquidity relating to its auctionrate securities will have a material impact on its ability to fund operations.

 

As of March 31, 2009, the Company holds $7.6million of auction rate securities with underlying tax-exempt municipal bondswith stated maturities of 22 years. These bonds have credit wrap insurance and have been rated AAA by creditagencies.

 

The Company believes that the credit quality andfair value of the auction rate securities it holds has not been negativelyimpacted; therefore, no impairment charges have been recorded as of March 31,2009.  As of March 31, 2009, theCompany has valued these investments at fair value, which approximatescost.  The Company used observable inputsto determine fair value, including consideration of broker quotes, the overallquality of the underlying municipality, the credit quality of the insurance company,as well as successful subsequent auctions. Accordingly, the Company has considered this fair value to be a Level 2valuation under SFAS No. 157,“Fair Value Measurement.”  If the credit quality of these investmentsdeteriorates, or adverse developments occur in the bond insurance market, theCompany may be required to record an impairment charge on these investments inthe future.

 

**7 — 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 two John Deere constructionequipment dealerships in Southeast Texas. Construction Equipment Segmentoperations include the retail sale of new and used construction equipment,aftermarket parts and service facilities, and the financing of new and usedconstruction equipment.

 

The accounting policies of the segments are the same as those describedin the summary of significant accounting policies in the annual report. TheCompany evaluates performance based on income before income taxes not includingextraordinary items.

 

The Company accounts forintersegment sales and transfers as if the sales or transfers were to thirdparties; that is, at current market prices. There were no material intersegmentsales during the quarters ended March 31, 2009 and 2008.

 

The Company’s reportable segments are strategic business units thatoffer different products and services. They are managed separately because eachbusiness unit requires different technology and marketing strategies. Businessunits were maintained through expansion and acquisitions.  The following table contains summarizedinformation about reportable segment profit or loss and segment assets for theperiods ended March 31, 2009 and 2008 (in thousands):

 
| ** **                               | ** ** | **Truck  Segment** | ** ** | **Construction  Equipment  Segment** | ** ** | **All Other** | ** ** | **Totals** | ** ** |
|------------------------------------------|------------|--------------------|------------|--------------------------------------|------------|---------------|------------|------------|------------|
|                                     |       |               |       |                                 |       |          |       |       |       |
| *Three months ended March 31, 2009* |       |               |       |                                 |       |          |       |       |       |
|                                     |       |               |       |                                 |       |          |       |       |       |
| Revenues from external customers         |       | $                  | 313,244    |                                 | $          | 11,595        |       | $          | 4,247      |   | $ | 329,086 |   |
| Segment income (loss) before taxes       |       | 3,713              |       | 865                                  |       | (476          | )          | 4,102      |       |
| Segment assets                           |       | 945,372            |       | 31,094                               |       | 27,935        |       | 1,004,401  |       |
|                                     |       |               |       |                                 |       |          |       |       |       |
| *Three months ended March 31, 2008* |       |               |       |                                 |       |          |       |       |       |
|                                     |       |               |       |                                 |       |          |       |       |       |
| Revenues from external customers         |       | $                  | 376,910    |                                 | $          | 22,418        |       | $          | 4,530      |   | $ | 403,858 |   |
| Segment income (loss) before taxes       |       | 14,036             |       | 1,918                                |       | (473          | )          | 15,481     |       |
| Segment assets                           |       | 952,522            |       | 33,368                               |       | 28,361        |       | 1,014,251  |       |

 

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.

 

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**8 — Income Taxes**

 

The Company accruedunrecognized income tax benefits totaling $1.9 million as a component ofaccrued liabilities as of March 31, 2009 and December 31, 2008.  The unrecognized tax benefits of $1.9 millionat March 31, 2009, if recognized, would impact the Company’s effective taxrate.  Included in this $1.9 millionaccrual is accrued interest of $185,000 related to unrecognized taxbenefits.  No amounts were accrued forpenalties.

 

The Company does notanticipate a significant change in the amount of unrecognized tax benefits inthe next 12 months.  As of March 31,2009, the tax years ended December 31, 2005, through 2008 remained subjectto examination by tax authorities.  TheU.S. Internal Revenue Service is currently examining the Company’s federalincome tax return for the tax year 2005.

 

TheCompany provided for taxes at a 30.2% effective rate in the first quarter of2009 compared to an effective rate of 37.5% in the first quarter of 2008.  The decrease in the Company’s effective taxrate results from the application of tax credits for sales of alternative fuelvehicles to tax-exempt municipalities that cannot claim the tax credits.  During 2009, the Company expects to continueto apply for alternativefuel vehicle tax credits for sales of alternative fuel vehicles to tax-exemptmunicipalities.  As a result, the Company’seffective tax rate may vary significantly depending on the number ofalternative fuel vehicles sold to tax-exempt entities in any given period.

 

**9 — Recent Accounting Pronouncements**

 

In December 2007,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R),**“BusinessCombinations” (“SFAS 141(R)”), which establishes principles andrequirements for how the acquirer:  (a) recognizes and measures inits financial statements the identifiable assets acquired, the liabilitiesassumed, and any noncontrolling interest in the acquiree; (b) recognizesand measures the goodwill acquired in the business combination or a gain from abargain purchase; and (c) determines what information to disclose toenable users of the financial statements to evaluate the nature and financialeffects of the business combination.  SFAS 141(R) requires contingentconsideration to be recognized at its fair value on the acquisition date and,for certain arrangements, changes in fair value to be recognized in earningsuntil settled.  SFAS 141(R) also requires acquisition-relatedtransaction and restructuring costs to be expensed rather than treated as partof the cost of the acquisition.  SFAS 141(R) appliesprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008.  The Company does not expect the adoption of SFAS 141(R) tohave a significant impact on its consolidated results of operations andfinancial position, but will impact any business combinations that close in thefuture.

 

In June 2008,the FASB issued FASB Staff Position EITF 03-6-1, “Determining WhetherInstruments Granted in Share-Based Payment Transactions are ParticipatingSecurities.”  EITF 03-6-1 requires unvested share-based payment awardsthat contain non-forfeitable rights to dividends or dividend equivalents to betreated as participating securities asdefined in EITF Issue No. 03-6, “Participating Securities and the Two-Class Methodunder FASB Statement No. 128,” and, therefore, included in the earningsallocation in computing earnings per share under the two-class method describedin FASB Statement No. 128, “Earnings per Share.”  Upon adoption, all previously reportedearnings per share data should be adjusted retrospectively to conform to therequirements of EITF 03-6-1.  The Companyis required to adopt EITF 03-6-1 starting in 2009.  The Company does notexpect EITF 03-6-1 to have an effect on its consolidated financial statements.

 

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**ITEM 2.  Management’s Discussionand Analysis of Financial Condition and Results of Operations.**

 

*Certain statements contained in this Form 10-Q(or otherwise made by the Company or on the Company’s behalf from time to timein other 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 followingcomments should be read in conjunction with the Company’s consolidatedfinancial statements and related notes included elsewhere in this QuarterlyReport on Form 10-Q.

 

**Note Regarding Trademarks Used inThis 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 NavistarInternational Transportation Corp. B**lue Bird**®** is aregistered trademark of Blue Bird Investment Corporation.*

 

**General**

 

Rush Enterprises, Inc.was incorporated in Texas in 1965 and currently consists of two reportablesegments: the Truck Segment and the Construction Equipment Segment.  The Company conducts business throughnumerous subsidiaries, all of which it wholly owns, directly orindirectly.  Its principal offices arelocated 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 Accounting Policies**

 

The Company’sdiscussion and analysis of its financial condition and results of operationsare based on the Company’s consolidated financial statements, which have beenprepared in accordance with United States generally accepted accountingprinciples.  The preparation of theseconsolidated financial statements requires the Company to make estimates andassumptions that affect the reported amounts of assets and liabilities at thedate of the consolidated financial statements and the reported amounts ofrevenues 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 arestated at the lower of cost or market value. Cost is determined by specific identification of new and used truck andconstruction equipment inventory and by the first-in, first-out method fortires, parts and accessories.  Anallowance is provided when it is anticipated that cost will exceed netrealizable value.

 

*Goodwill*

 

The Companyapplies the provisions of Statement of Financial Accounting Standards No. 142,“Goodwill and Other Intangible Assets” (“SFAS 142”), in accounting forgoodwill.  SFAS 142 requires thatgoodwill and other intangible assets that have indefinite useful lives may notbe amortized, but instead must be tested at least annually for impairment, andintangible assets that have finite useful lives should continue to be amortizedover their useful lives.  SFAS 142 alsoprovides specific guidance for testing goodwill and other non-amortizedintangible assets for impairment.  SFAS142 requires management to make certain estimates and assumptions in order toallocate goodwill to reporting units and to determine the fair value of areporting unit’s net assets and liabilities, including, among other things, anassessment of market condition, projected cash flows, interest rates and growthrates, which could significantly impact the reported value of goodwill andother intangible assets.  SFAS 142requires, in lieu of amortization, an annual impairment review ofgoodwill.  The Company performs itsannual review during the fourth quarter of each year and, therefore, did notrecord an impairment charge related to goodwill during the first quarter of2009.  Management is not aware of anyimpairment charge that may be required; however, a change in economicconditions, if one occurs, could result in an impairment charge in the future.

 

*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 maintenance plansare deferred as a component of accrued expenses and recognized as income whenthe maintenance is performed.

 

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*Finance and Insurance Revenue Recognition*

 

Financeincome related to the sale of a unit is recognized when the finance contract issold to a finance company.  The Companyarranges financing for customers through various retail funding sources andreceives a commission from the lender equal to either the difference betweenthe interest rates charged to customers over the predetermined interest ratesset by the financing institution or a commission for the placement ofcontracts. The Company also receives commissions from the sale of variousinsurance products to customers.  Revenueis recognized by the Company upon the sale of such finance and insurancecontracts to the finance and insurance companies net of a provision forestimated repossession losses and interest charge-backs on finance contracts.The Company is not the obligor under any of these underlying contracts. In thecase of finance contracts, a customer may prepay, or fail to pay, therebyterminating the underlying contract. If the customer terminates a retailfinance contract or other insurance product prior to scheduled maturity, aportion of the commissions previously paid to the Company may be charged backto the Company depending on the terms of the relevant contracts. The estimateof ultimate charge-back exposure is based on the Company’s historicalcharge-back expense arising from similar contracts, including the impact ofrefinance and default rates on retail finance contracts and cancellation rateson other insurance products. The actual amount of historical charge-backs hasnot been significantly different 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*

 

Significantmanagement judgment is required to determine the provisions for income taxesand to determine whether deferred tax assets will be realized in full or inpart.  Deferred income tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled.  When it is morelikely than not that all or some portion of specific deferred income tax assetswill not be realized, a valuation allowance must be established for the amountof deferred income tax assets that are determined not to be realizable.  The Company has a valuation allowance relatedto deferred tax assets in certain states. Accordingly, the facts and financial circumstances impacting statedeferred income tax assets are reviewed quarterly and management’s judgment isapplied to determine the amount of valuation allowance required in any givenperiod.

 

Additionally, despite theCompany’s belief that its tax return positions are consistent with applicabletax law, management believes that certain positions may be challenged by taxingauthorities.  Settlement of any challengecan result in no change, a complete disallowance, or some partial adjustmentreached through negotiations.

 

The Company follows FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement No. 109,” which requires that only incometax benefits that meet the “more likely than not” recognition threshold berecognized or continue to be recognized on its effective date.  The Company’s income tax expense includes theimpact of reserve provisions and changes to reserves that it considersappropriate, as well as related interest. Unfavorable settlement of any particular issue would require use of theCompany’s cash and a charge to income tax expense.  Favorable resolution would be recognized as areduction to income tax expense at the time of resolution.

 

*Stock-BasedCompensation 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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**Resultsof Operations**

 

Thefollowing discussion and analysis includes the Company’s historical results ofoperations for the three months ended March 31, 2009 and 2008.

 

Thefollowing table sets forth certain financial data as a percentage of totalrevenues:

 
| ** **                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------|------------|----------------------------------------|------------|
| ** **                          | ** ** | **2009**                               | ** ** | **2008** | ** ** |
|                                |       |                                   |       |   |   |
| New and used truck sales            |       | 59.6                                   | %          | 62.3 | % |
| Parts and service                   |       | 33.2                                   |       | 29.1 |   |
| Construction equipment sales        |       | 2.1                                    |       | 4.2 |   |
| Lease and rental                    |       | 4.1                                    |       | 3.2 |   |
| Finance and insurance               |       | 0.5                                    |       | 0.9 |   |
| Other                               |       | 0.5                                    |       | 0.3 |   |
| **Total revenues**                  |       | 100.0                                  |       | 100.0 |   |
| Cost of products sold               |       | 81.3                                   |       | 80.6 |   |
| Gross profit                        |       | 18.7                                   |       | 19.4 |   |
| Selling, general and administrative |       | 15.8                                   |       | 14.1 |   |
| Depreciation and amortization       |       | 1.2                                    |       | 1.0 |   |
| **Operating income**                |       | 1.7                                    |       | 4.3 |   |
| Interest expense, net               |       | 0.5                                    |       | 0.5 |   |
| Gain on sale of assets              |       | 0.0                                    |       | 0.0 |   |
| Income before income taxes          |       | 1.2                                    |       | 3.8 |   |
| Provision for income taxes          |       | 0.4                                    |       | 1.4 |   |
| **Net income**                      |       | 0.8                                    | %          | 2.4 | % |

 

Thefollowing table sets forth the unit sales and revenue for new heavy-duty, newmedium-duty and used trucks and the absorption rate (revenue in millions):

 
| ** **                 | ** ** | **Three Months Ended  March 31,** | ** ** | **% Change** | ** ** |
|----------------------------|------------|----------------------------------------|------------|--------------|------------|
| ** **                 | ** ** | **2009**                               | ** ** | **2008**     | ** ** | **2009  vs  2008** | ** ** |
| **Truck unit sales:**      |       |                                   |       |         |       |   |   |
| New heavy-duty trucks      |       | 1,032                                  |       | 1,266        |       | (18.5 | )% |
| New medium-duty trucks     |       | 754                                    |       | 972          |       | (22.4 | )% |
| Total new truck unit sales |       | 1,786                                  |       | 2,238        |       | (20.2 | )% |
|                       |       |                                   |       |         |       |   |   |
| Used truck unit sales      |       | 577                                    |       | 900          |       | (35.9 | )% |
|                       |       |                                   |       |         |       |   |   |
| **Truck revenue:**         |       |                                   |       |         |       |   |   |
| New heavy-duty trucks      |       | $                                      | 124.0      |         | $          | 152.3 |   | (18.6 | )% |
| New medium-duty trucks     |       | 48.8                                   |       | 55.2         |       | (11.6 | )% |
| Total new truck revenue    |       | $                                      | 172.8      |         | $          | 207.5 |   | (16.7 | )% |
|                       |       |                                   |       |         |       |   |   |
| Used truck revenue         |       | $                                      | 22.7       |         | $          | 42.6 |   | (46.7 | )% |
|                       |       |                                   |       |         |       |   |   |
| **Other revenue:(1)**      |       | $                                      | 0.5        |         | $          | 1.3 |   | (61.5 | )% |
|                       |       |                                   |       |         |       |   |   |
| **Absorption rate:**       |       | 97.2                                   | %          | 104.9        | %          | (7.3 | )% |

 

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(1)  Includes sales of truck bodies, trailers and other newequipment.

 

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**Key PerformanceIndicator**

 

*AbsorptionRate*

 

Management uses many performance metrics toevaluate the performance of its dealerships, but considers its “absorption rate”to be of critical importance.  Absorptionrate is calculated by dividing the gross profit from the parts, service andbody shop departments by the overhead expenses of all of a dealership’sdepartments, except for the selling expenses of the new and used truckdepartments and carrying costs of new and used truck inventory.  When 100% absorption is achieved, then grossprofit from the sale of a truck, after sales commissions and inventory carryingcosts, directly impacts operating profit. In 1999, the Company’s truck dealerships’ absorption rate wasapproximately 80%.  The Company has madea concerted effort to increase its absorption rate since then.  The Company’s truck dealerships achieved a104.9% absorption rate for the first quarter of 2008 and 97.2% absorption ratefor the first quarter in 2009.

 

**ThreeMonths Ended March 31, 2009 Compared to Three Months Ended March 31,2008**

 

RushEnterprises remained profitable in the first quarter of 2009 despite verydifficult market conditions.  The ongoingrecession had a severe impact on the Company’s aftermarket operations in thefirst quarter of 2009.  Rush TruckCenters’ aftermarket parts, service and body shop revenues decreased 6.4% andgross profit decreased 12.8%.  This sharpdecline in aftermarket gross profit caused our absorption rate to decrease to97.2% from 104.9% in the first quarter of last year.

 

Depressed consumer spendinghas reduced over-the-road freight tonnage, the freight-intensive automotive andconstruction industries remain depressed, and most recently the oil and gasindustry has dramatically reduced expenditures due to the decrease in oil andgas prices.  While our network ofdealerships has been built to provide geographic and customer diversity, itappears that all areas of the country and almost every industry are beingaffected by the recession.  Decreasedfreight tonnage and overall weakness in almost every vocational market we servecreates excess capacity for our customers, which is allowing them to delaymaintenance on the trucks they already own and purchases of new trucks.  The Company expects the second quarter of 2009 to bethe weakest quarter since the truck market downturn began in 2007 because ofweak truck and aftermarket sales.

 

We believe demand for new Class 8 trucks willbegin to increase during the second half of the year because of the currentaverage age of vehicles in operation, which is at a level last seen in theearly 1990’s, and the impending 2010 diesel emissions regulations, which mayadd as much as $10,000 to the cost of Class 8 trucks with enginesmanufactured after January 1, 2010.  While depressed used truckvalues and tight credit continue to impede truck sales efforts, we are seeingincreasing interest and requests for quotes from some of our customers.  Unfortunately, economic uncertainty remainshigh and we are not in a position to predict when the economy will improve andlenders will begin to ease credit requirements. We are hopeful that the recent increase in customer interest andinquiries will translate into improved truck sales in the second half of 2009.

 

A.C.T. Research Co., LLC (“A.C.T. Research”), a truckindustry data and forecasting service provider, currently predicts U.S. retailsales of Class 8 trucks of approximately 114,600 units in 2009, an 18.1%decline from the number of deliveries in 2008. However, the Company expects that 2009 sales of Class 8 units to bein the range of 100,000 to 110,000 units.

 

A.C.T. Research currently predicts U.S. retail salesof Class 4, 5, 6, and 7 medium-duty trucks of approximately 153,500 unitsin 2009, an 11.5% decline from the number of deliveries in 2008.  The Company believes U.S. retail sales ofmedium-duty trucks in 2009 could decrease as much as 20% compared to 2008.

 

The Company’s parts, service and body shop salesdecreased 7.1% in the first quarter of 2009 compared to the firstquarter of 2008.  We anticipate parts, service and body shopsales to remain weak until general economic conditions improve.

 

In the first quarter of 2009, the Company’sconstruction equipment segment revenue decreased by 48.3% compared to the firstquarter of 2008.  This decrease waslargely attributable to the weakening construction market in the Houstonarea.  Current industry forecasts suggestthat construction equipment sales will decline approximately 30% in the Company’sarea of responsibility during 2009.

 

The ongoing weakness in the economy and tight creditmarkets continue to impact consumer confidence and spending, which have adirect impact on freight and our financial performance.  Overall economic uncertainty continues tomake it difficult for the Company to forecast future results of operations.

 

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*Revenues*

 

Revenuesdecreased $74.8 million, or 18.5%, in the first quarter of 2009 comparedto the first quarter of 2008.  Sales ofnew and used trucks decreased $55.4 million, or 22.0%, in the firstquarter of 2009 compared to the first quarter of 2008.  Uncertain economic conditions, the weak freight environment, slowingconstruction markets and tight credit markets contributed to decreaseddemand trucks and aftermarket service in the first quarter of 2009.  The Company does not believe that demand for truckswill increase until general economic conditions begin to improve and credit ismade available to a wider range of buyers on reasonable terms.

 

The Company sold 1,032heavy-duty units in the first quarter of 2009, a 18.5% decrease compared to1,266 heavy-duty trucks in the first quarter of 2008.  According to A.C.T. Research,the U.S. Class 8 truck market decreased 28.0% in the first quarter of 2009compared to the first quarter of 2008. The Company’s share of the U.S. Class 8truck sales market was approximately 3.9% in 2008.  The Company expects its share to range between3.9% and 4.1% of the U.S. Class 8 truck market in 2009, which would resultin the sale of approximately 3,900 to 4,500 Class 8 trucks based on ourcurrent U.S. retail sales estimates of 100,000 to 110,000 units.

 

The Company sold 754medium-duty trucks, including 128 buses, in the first quarter of 2009, a 22.4%decrease compared to 972 medium-duty trucks in the first 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 Texas.  A.C.T. Research estimates that unit sales of Class 4through 7 trucks in the U.S. decreased approximately 33% in the first quarterof 2009 compared to the first quarter of 2008. In 2008, the Company achieved a 2.1% share of the Class 4 through 7truck sales market in the U.S.  TheCompany expects its share to range between 2.1% and 2.3% of the U.S. Class 4through 7 truck sales market in 2009. This market share percentage would result in the sale of approximately3,000 to 3,500 of Class 4 through 7 trucks in 2009 based on our currentU.S. retail sales estimates of approximately 140,000 to 153,500 units.

 

The Company sold 577 usedtrucks in the first quarter of 2009, a 35.9% decrease compared to 900 used trucksin the first quarter of 2008.  For 2009,used truck sales volumes and prices will be primarily driven by generaleconomic conditions and the availability of credit, which collectively have hada severe impact on this market since 2008. The Company expects to sell approximately 2,300 to 2,500 used trucks in2009.

 

Parts and service salesdecreased $8.4 million, or 7.1%, in the first quarter of 2009 compared to thefirst quarter of 2008.  Same store partsand service sales decreased $13.3 million, or 11.3%, in the first quarter of2009 compared to the first quarter of 2008 primarily due to weakening economicconditions.    Parts and service saleshave continually decreased since the fall of 2008 and the Company expects partsand service sales to remain weak through the second quarter of 2009.

 

Sales of new and usedconstruction equipment decreased $9.9 million, or 58.7%, in the first quarterof 2009 compared to the first quarter of 2008. This decrease was largely attributable to the weakening construction marketin the Houston area.  John Deere’srolling twelve month average market share in the Houston area constructionequipment market decreased to 16.4% as of March 31, 2009 from a rollingtwelve month average of 18.1% as of March 31, 2008.  In 2009, the Company expects new constructionequipment unit sales in our area of responsibility to decrease approximately25% to 30%, compared to 2008.

 

Truck lease and rentalrevenues increased $0.5 million, or 3.5%, in the first quarter of 2009 comparedto the first quarter of 2008.  Thisincrease in lease and rental revenue is consistent with management’sexpectations, considering the increased number of units put into service in thelease and rental fleet during 2008, which was primarily due to the acquisitionof an Idealease location in North Carolina. The Company expects lease and rental revenue to increase approximately2% to 5% in 2009 compared to 2008.

 

Finance and insurancerevenues decreased $1.9 million, or 52.4%, in the first quarter of 2009compared to the first 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 increased$0.4 million, or 31.2% in the first quarter of 2009 compared to the firstquarter of 2008.  Other income consistsprimarily of the gain on sale realized on trucks from the lease and rentalfleet, commissions earned from John Deere for direct manufacturer sales intoour area of responsibility, document fees related to truck sales and purchasediscounts.

 

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*GrossProfit*

 

Gross profit decreased$16.5 million, or 21.1%, in the first quarter of 2009 compared to the firstquarter of 2008.  Gross profit as apercentage of sales decreased to 18.7% in the first quarter of 2009 from 19.4%in the first quarter of 2008.  Thisdecrease is primarily a result of decreased demand for aftermarket parts andservice, which causes margin deterioration in parts and service revenue.

 

Grossmargins on Class 8 truck sales decreased to 7.0% in the first quarter of2009 from 9.3% in the first 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 6.0% to7.0%.

 

Grossmargins on medium-duty truck sales slightly increased to 6.4% in the firstquarter of 2009 from 6.0% in the first quarter of 2008.  Gross margins on medium-duty trucks aredifficult to forecast accurately because gross margins vary significantlydepending upon the mix of fleet and non-fleet purchasers and types ofmedium-duty trucks sold.  For 2009, theCompany expects overall gross margins from medium-duty truck sales ofapproximately 5.0% to 6.5%.

 

Grossmargins on used truck sales decreased to 5.7% in the first quarter of 2009 from7.0% in the first quarter of 2008.  Write-downs ofused truck inventory values during the first quarter of 2009 caused grossmargins on used truck sales to decrease in the first quarter of 2009 comparedto the first quarter of 2008.  Thewrite-downs were necessary because of decreased demand for used trucks as aresult of worsening general economic conditions, decreased freight demand, andthe tight credit market.  The Company ishopeful that margins on used trucks will be in the range of approximately 5.5%to 7.5% during 2009, but this will largely depend upon general economicconditions and the availability of credit.

 

Gross margins from theCompany’s parts, service and body shop operations decreased to 39.2% in thefirst quarter of 2009 from 41.6% in the first quarter of 2008.  Gross profit for the parts, service and bodyshop departments decreased slightly to $42.8 million in the first quarter of2009 from $48.9 million in the first quarter of 2008.  The Company expects gross margins on parts,service and body shop operations of approximately 39.0% to 41.0% during 2009.

 

Gross margins on new andused construction equipment sales increased to 12.0% in the first quarter of2009 from 10.4% in the first quarter of 2008. This increase in gross margin is primarily attributable to a change inour product sales mix.  The Companyexpects 2009 gross margins to remain in a range of approximately 9.0% to 12.0%as the Company continues efforts to increase its market share.

 

Gross margins from trucklease and rental sales decreased to 11.5% in the first quarter of 2009 fromapproximately 16.9% in the first quarter of 2008.  The decrease in the grossmargin from lease and rental sales is primarily due to the decreasedutilization 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 $4.9 million, or 8.6%, in thefirst quarter of 2009 compared to the first quarter of 2008.  SG&A expenses as a percentage of salesincreased to 15.8% in the first quarter of 2009 from 14.1% in the first quarterof 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 first quarter of 2009, the sellingportion of SG&A expenses, which consists primarily of commissions on truckand construction equipment sales, decreased 29.3% and the general andadministrative portion of SG&A decreased 6.6% compared to the first quarterof 2008.  In 2009, the Company expectsthe selling portion of SG&A expenses to be approximately 25% to 28% of newand used truck gross profit.  The sellingportion of SG&A varies based on the gross profit derived from trucksales.  The Company took actionthroughout 2008 and in the first quarter of 2009 to reduce overhead expenses toa 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.

 

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*Interest Expense, Net*

 

Net interest expensedecreased $0.3 million, or 15.7%, in the first quarter of 2009 compared tothe first quarter of 2008.  If floor planinterest 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 $11.4 million, or 73.5%, in the first quarter of 2009 compared tothe first quarter of 2008, as a result of the factors described above.  The Company believes that income beforeincome taxes in 2009 will decrease compared to 2008 based on the factorsdescribed above.

 

*Income Taxes*

 

Income taxes decreased$4.6 million, or 78.7%, in the first quarter of 2009 compared to the first quarter of 2008.  The Company provided for taxes at a 30.2%effective rate in the first quarter of 2009 compared to an effective rate of37.5% in the first quarter of 2008.  Thedecrease in the Company’s effective tax rate results from the application oftax credits for sales of alternative fuel vehicles to tax-exempt municipalitiesthat cannot claim the tax credits. During 2009, the Company expects to continue to apply for alternative fuel vehicle tax credits forsales of alternative fuel vehicles to tax-exempt municipalities.  These transactions will increase the Company’sSG&A expense because the Company passes a portion of these credits on tothese tax-exempt municipalities in the form of a discretionary rebate.  As a result, the Company’s effective tax ratemay vary significantly depending on the number of alternative fuel vehiclessold to tax-exempt entities.

 

**Liquidityand Capital Resources**

 

The Company’s short-termcash requirements are primarily for working capital, inventory financing, theimprovement and expansion of existing facilities, the implementation of SAPenterprise software and dealership management system, and the construction ofnew facilities.  Historically, these cashrequirements have been met through the retention of profits and borrowings underour floor plan arrangements. As of March 31, 2009, the Company had workingcapital of approximately $168.3 million, including $131.6 million in cashavailable to fund our operations.  TheCompany believes that these funds are sufficient to meet its short-term andlong-term cash requirements.

 

The Company mayrequest working capital advances in the minimum amount of $100,000 under itsAmended and Restated Wholesale Security Agreement with GE Capital, its primarytruck lender.  However, such working capitaladvances may not cause the total indebtedness owed GE Capital to exceed anamount equal to the wholesale advances made against the then current inventoryless any payment reductions then due. There were no working capital advances outstanding under this agreementat March 31, 2009.

 

The Company has a securedline of credit that provides for a maximum borrowing of $8.0 million.  There were no advances outstanding under thissecured line of credit at March 31, 2009, however, $6.1 million waspledged to secure various letters of credit related to self-insurance products,leaving $1.9 million available for future borrowings as of March 31, 2009.

 

TheCompany’s long-term real estate debt agreements require the Company to satisfy various financial ratios such asthe debt to worth ratio and the fixed charge coverage ratio.  The Company’s floor plan financing agreementwith GE Capital does not contain financial covenants.  At March 31, 2009, the Company is 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 $30.0 million to $32.0million.  As of March 31, 2009, theCompany had cumulative expenditures of $22.7 million related to the SAPproject.  The Company expects to spendapproximately $7.0 million to $8.0 million related to the SAP project in 2009.

 

The Company is currently constructing a new facility for its Rush TruckCenter location in Oklahoma City, Oklahoma at an estimated cost of $12.0million.  As of March 31, 2009, theCompany had expenditures of $5.6 million related to the construction of the newfacility.

 

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The Company also expects to make capital expenditures for recurringitems such as computers, shop tools and equipment and vehicles of approximately$10.0 million during 2009. As of March 31, 2009, the Company had expendituresof approximately $1.0 million related to these recurring items.

 

On July 22, 2008,the Company’s Board of Directors approved a stock repurchase programauthorizing the Company to repurchase, from time to time, up to an aggregate of$20,000,000 of its shares of Class A common stock and/or Class Bcommon stock.  Repurchases will be madeat times and in amounts as the Company deems appropriate and will be madethrough open market transactions, privately negotiated transactions and otherlawful means. The manner, timing and amount of any repurchases will bedetermined by the Company based on an evaluation of market conditions, stockprice and other factors, including those related to the ownership requirementsof its dealership agreements with manufacturers it represents. The stockrepurchase program has no expiration date and may be suspended or discontinuedat any time.  While the stock repurchaseprogram does not obligate the Company to acquire any particular amount or classof common stock, the Company anticipates that it will be repurchasing primarilyshares of its Class B common stock. As of March 31, 2009, the Company has repurchased 1,639,843 sharesof its Class B common stock at a cost of $17.9 million, none of whichoccurred during the first quarter of 2009.

 

The Company currentlyanticipates funding its capital expenditures relating to the SAP software andimplementation, construction of its new Rush Truck Center in Oklahoma City,recurring expenses and any stock repurchases through its operating cashflow.  The Company expects to finance 80%of the appraised value of the Oklahoma City facility upon completion, whichwill increase the Company’s cash and cash equivalents by that amount.

 

The Company has no other material commitments for capital expendituresas of March 31, 2009,except that the Company will continue to purchase vehicles for its lease andrental division and authorize capital expenditures for improvement andexpansion of its dealership facilities based on market opportunities.  The Company expects to purchase trucksworth approximately $30.0 million for its leasing operations in 2009, dependingon customer demand, which it will finance.

 

**Cash Flows**

 

Cash and cash equivalents decreased by $14.8 million during the threemonths ended March 31, 2009 and decreased by $40.8 million during thethree months ended March 31, 2008. The major components of these changes are discussed below.

 

*Cash Flows from Operating Activities*

 

Cash flows fromoperating activities include net income adjusted for non-cash items and theeffects of changes in working capital. During the first quarter of 2009, operating activities resulted in netcash provided by operations of $41.8 million. Cash provided by operating activities was primarily impacted by thedecrease in inventories which was offset by the decrease in accounts payableand accrued expenses.  During the firstquarter of 2008, operating activities resulted in net cash used in operationsof $11.6 million.

 

Cash flows from operating activities as adjusted for all draws and(payments) on floor plan notes (“Adjusted Cash Flows from Operating Activities”)was $5.1 million for the three months ended March 31, 2009 and $2.4million for the three months ended March 31, 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 Adjusted Cash Flows fromOperating Activities provides investors with a relevant measure of liquidityand a useful basis for assessing the Company’s ability to fund its activitiesand obligations from operating activities. Floor plan notes payable is classified as a current liability and,therefore, is included in the working capital amounts discussed above.

 

Adjusted Cash Flows from Operating Activities is a non-GAAP financialmeasure and should be considered in addition to, and not as a substitute for,cash flows from operating activities as reported in our consolidated statementsof cash flows in accordance with U.S. GAAP. Additionally, this measure may vary among other companies; thus,Adjusted Cash Flows from Operating Activities as presented herein may not becomparable to similarly titled non-GAAP financial measures of othercompanies.  Set forth below is areconciliation of cash flow from operating activities as reported in ourconsolidated statement of cash flows, as if all changes in floor plan notespayable were classified as an operating activity (in thousands).

 

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| ** **                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                 | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Net cash provided by (used in) operating activities (GAAP) |       | $                                      | 41,827     |   | $ | (11,641 | ) |
| Payments on floor plan notes payable                       |       | (36,764                                | )          | 14,019 |   |
|                                                       |       |                                   |       |   |   |
| Adjusted Cash Flows from Operating Activities (Non-GAAP)   |       | $                                      | 5,063      |   | $ | 2,378 |   |

 

*Cash Flows from Investing Activities*

 

Cash flows used in investing activities consist primarily of cash usedfor capital expenditures.  During thefirst quarter of 2009, cash used in investing activities was $10.9million.  Capital expenditures consistedof purchases of property and equipment, and improvements to our existingdealership facilities and construction of our new facility in Oklahoma City,Oklahoma of $11.0 million. Property and equipment purchases during the firstquarter of 2009 consisted of $3.1 million for additional units for the rentaland leasing operations, which was directly offset by borrowings of long-termdebt.  The Company expects to purchasetrucks worth approximately $30.0 million for its leasing operations in 2009,depending on customer demand, all of which will be financed.  During 2009, the Company expects to makecapital expenditures for recurring items such as computers, shop equipment andvehicles of approximately $10.0 million in addition to $7.0 million to $8.0million for the SAP software implementation described above.

 

During the first quarter of 2008, cash used in investing activities was$36.9 million.  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 $6.8 million. Property and equipment purchases during the first quarter of 2008consisted of $1.3 million of additional units for the rental and leasingoperations, which was directly offset by borrowings of long-term debt.

 

*Cash Flows from Financing Activities*

 

**Cash flows from financingactivities include borrowings and repayments of long-term debt and net proceedsof floor plan notes payable.  Cash usedin financing activities was $45.7 million during the first quarter of 2009. TheCompany had borrowings of long-term debt of $2.7 million and repayments oflong-term debt of $10.8 million during the first quarter of 2009.  The Company had net payments of floor plannotes payable of $36.8 million during the first quarter of 2009.  The borrowings of long-term debt wereprimarily related to units for the rental and leasing operations.**

** **

**Cash provided by financingactivities was $7.8 million during the first quarter of 2008. The Company hadborrowings of long-term debt of $4.4 million and repayments of long-term debtof $10.0 million during the first quarter of 2008.   The Company had net draws of floor plannotes payable of $14.0 million during the first quarter of 2008.  The borrowings of long-term debt wereprimarily related to refinancing of real estate.**

** **

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 March 31,2009, the Company had approximately $229.1 million outstanding under its floorplan financing agreement with GE Capital.

 

Substantially all of theCompany’s new construction equipment purchases are financed by John Deere andJPMorgan Chase (“Chase”).  The agreement with John Deere provides aninterest free financing period after which time the amount financed is requiredto be paid in full.  When construction equipment is sold prior to theexpiration of the interest free finance period, the Company is required torepay the principal within approximately ten days of the sale. If theconstruction equipment financed by John Deere is not sold within the interestfree finance period, it is transferred to the Chase floor plan 

 

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arrangement.  TheCompany makes principal payments for sold new and used construction equipmentto Chase on the 15th 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 March 31, 2009, the Company’s floorplan arrangement with Chase permitted the financing of up to $20.0 million inconstruction equipment.  On March 31, 2009, the Company had $1.9million outstanding under its floor plan financing arrangements with John Deereand $15.0 million outstanding under its floor plan financing arrangement withChase.

 

*Backlog*

 

On March 31, 2009, the Company’s backlog oftruck orders was approximately $61.0 million as compared to a backlog of truckorders of approximately $255.6 million on March 31, 2008. The Companyincludes only confirmed orders in its backlog. The deliverytime for a custom-ordered truck varies depending on the truck specificationsand demand for the particular model ordered; however, due to the decreaseddemand for trucks, delivery times for heavy-duty trucks have decreasedsignificantly from delivery times during periods of peak demand.  As a result, purchasers of heavy-duty truckscurrently do not need to place orders several months in advance.  The Company sells the majority of its newtrucks by customer special order, with the remainder sold out of inventory. Orders from anumber of the Company’s major fleet customers are included in the Company’s backlogas of March 31, 2009.

 

*Seasonality*

 

TheCompany’s heavy-duty truck business is moderately seasonal. Seasonal effects onnew truck sales related to the seasonal purchasing patterns of any singlecustomer type are mitigated by the diverse geographic locations of ourdealerships and the Company’s diverse customer base, including regional andnational fleets, local municipalities, corporations and owner operators.However, truck parts and service operations historically have experiencedhigher sales volumes in the second 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*

## * *

TheCompany’s business is dependent on a number of factors relating to generaleconomic conditions, including fuel prices, interest rate fluctuations,economic recessions, environmental and other government regulations andcustomer business cycles. Unit sales of new trucks have historically beensubject to substantial cyclical variation based on these general economicconditions. According to data published by A.C.T. Research, in recent yearstotal domestic retail sales of new Class 8 trucks have ranged from a lowof approximately 140,000 in 2001 and 2008 to a high of approximately 291,000 in2006.  Through geographic expansion,concentration on higher margin parts and service operations and diversificationof its customer base, the Company believes it can reduce the negative impact onthe Company’s earnings of cyclical trends affecting the heavy-duty truckindustry.

 

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

##### * *

Our operations are subject to numerous federal, state and local lawsand regulations, including laws and regulations designed to protect theenvironment by regulating the discharge of materials into the environment. EPAemission guidelines have traditionally had a major impact on our operations.

 

EPA emissions guidelines regarding nitrous oxides are scheduled to gointo effect for 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.  The EPA has alsopassed regulations requiring manufacturers to install on-board diagnosticsystems that monitorthefunctioning of emission control components and alert the vehicle operator toany detected need for emission-related repair on 2010 and later heavy-and medium-duty trucks, which could also impact demandfor trucks.

 

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

 

Market risk,including interest rate risk and other relevant market rate or price risks,represents the risk of loss that may impact the financial position, results ofoperations, or cash flows of the Company.

 

**The Company is exposed to somemarket risk through interest 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 March 31, 2009, the Company hadfloor plan borrowings of approximately $245.9 million.  Assuming an increase or decrease in LIBOR of100 basis points, annual interest expense could correspondingly increase ordecrease by approximately $2.5 million. The Company provides all customer financing opportunities to various financeproviders. The Company receives all finance charges in excess of a negotiateddiscount rate from the finance providers in the month following the date of thefinancing. The negotiated discount rate is variable, thus subject to interestrate fluctuations. This interest rate risk is mitigated by the Company’sability to pass discount rate increases to customers through higher financingrates.

** **

**The Company is also exposed tosome market risk through interest rates related to the investment of our currentcash and cash equivalents which totaled $131.6 million on March 31,2009.  These funds are generally investedin variable interest rate instruments in accordance with the Company’sinvestment policy.  As such instrumentsmature and the funds are reinvested, we are exposed to changes in marketinterest rates. This risk is mitigated by management’s ongoing evaluation ofthe best investment rates available for current and noncurrent high qualityinvestments.  If market interest rates were to decrease immediately anduniformly to yield 0%, the Company’s annual interest income couldcorrespondingly decrease by approximately $650,000.**

** **

In the past, the Companyinvested in interest-bearing short-term investments consisting ofinvestment-grade auction rate securities classified as available-for-sale.  As a result of the recent liquidity issuesexperienced in the global credit and capital markets, auctions for investmentgrade securities held by the Company have failed.  The auction rate securities continue to pay interestin accordance with the terms of the underlying security; however, liquiditywill be limited until there is a successful auction or until such time as othermarkets for these investments develop.

 

As of March 31, 2009, the Company holds$7.6 million of auction rate securities with underlying tax-exempt municipalbonds with stated maturities of 22 years. Given the current market conditions in the auction rate securitiesmarket, if the Company determines that the fair value of these securities hastemporarily decreased by 10%, the Company’s equity could correspondinglydecrease by approximately $0.8 million. If it is determined that the fair value of these securities isother-than-temporarily impaired by 10%, the Company could record a loss on itsConsolidated Statements of Income of approximately $0.8 million.  For further discussion of the risks relatedto our auction rate securities, see Note 6 — Investments of the Notes toConsolidated 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 Company has not usedderivative financial instruments in our investment portfolio.**

** **

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

#### ** **

TheCompany, under the supervision and with the participation of management,including the Chief Executive Officer and Chief Financial Officer, evaluatedthe effectiveness of the Company’s disclosure controls and procedures as of theend of the period covered by this report. Based on that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures were effective as of March 31, 2009 to provide reasonableassurance that information required to be disclosed in the reports filed orsubmitted 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.

 

Therehas been no change in the Company’s internal control over financial reportingthat occurred during the three months ended March 31, 2009 that hasmaterially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial 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 attempt toidentify, 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, Part I of our 2008 Annual Report on Form 10-K(the “2008 Annual Report”) describes some of the risks and uncertaintiesassociated with our business that have the potential to materially affect ourbusiness, financial condition or results of operations.

 

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

 

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

 

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

 

**ITEM3.  Defaults Upon Senior Securities.**

 

Not Applicable

 

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

 

Not Applicable

 

**ITEM5.  Other Information.**

 

NotApplicable

 

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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 (incorporated herein by  reference to Exhibit 3.1 of the Company’s Current Report on  Form 8-K (File No. 000-20797) filed December 9, 2008)                            |
|                |       |                                                                                                                                                                                                                                                     |
| 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**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                                            |   | RUSH  ENTERPRISES, INC.                      |
|-------------------------------------------------|--------|----------------------------------------------|
|                                            |   |                                         |
|                                            |   |                                         |
| Date:     May 11, 2009 | By:    | /S/ W.M. “RUSTY” RUSH              |
|                                            |   | W.M.  “Rusty” Rush                 |
|                                            |   | President  and Chief Executive Officer       |
|                                            |   | (Principal Executive Officer)                |
|                                            |   |                                         |
|                                            |   |                                         |
| Date:     May 11, 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**                                                                                                                                  |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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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