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Rush Enterprises, Inc. Reports Fourth Quarter And Year-End 2012 Results

Stocks in this article: RUSHA RUSHB

Management believes the presentation of these non-GAAP financial measures provides useful information about the results of operations of the Company for the current and past periods. Management believes that investors should have available the same information that management uses to assess operating performance and assess capital structure of the Company. These non-GAAP financial measures should not be considered in isolation or as a substitute for the most comparable GAAP financial measures. Investors are cautioned that non-GAAP financial measures utilized by the Company may not be comparable to similarly titled non-GAAP financial measures used by other companies. 

 

  Three Months Ended
 Vehicle Sales Revenue: December 31, 2012 December 31, 2011
 New heavy-duty vehicles $ 307,511 $ 388,274
 New medium-duty vehicles (including bus sales revenue)  127,595  120,642
 New light-duty vehicles  12,356   9,668
 Used vehicles  42,609  47,800
 Other vehicles 6,521 4,141
     
 Absorption Ratio 116.6%  115.7%

Absorption Ratio

Management uses several performance metrics to evaluate the performance of its commercial vehicle dealerships, and considers Rush Truck Centers' "absorption ratio" to be of critical importance. Absorption ratio is calculated by dividing the gross profit from the parts, service and body shop departments by the overhead expenses of all of a dealership's departments, except for the selling expenses of the new and used commercial vehicle departments and carrying costs of new and used commercial vehicle inventory. When 100% absorption is achieved, then gross profit from the sale of a commercial vehicle, after sales commissions and inventory carrying costs, directly impacts operating profit.

Debt Analysis  December 31, 2012 December 31, 2011
Floor plan notes payable $ 534,520 $ 520,693
Current maturities of long-term debt 80,030 63,465
Current maturities of capital lease obligations 10,673 10,056
LONG-TERM DEBT, net of current maturities 319,634 264,822
CAPITAL LEASE OBLIGATIONS, net of current maturities 39,300 35,498
Total Debt (GAAP) 984,157 894,534
Adjustments:    
Debt related to lease & rental fleet (322,913) (233,624)
Floor plan notes payable (534,520) (520,693)
Adjusted Total Debt (Non-GAAP) 126,724 140,217
Adjustments:    
Cash and cash equivalents (198,773) (207,775)
Adjusted Net Debt (Non-GAAP) $  (72,049)  $ (67,558)

Management uses "Adjusted Total Debt" to reflect the Company's estimated financial obligations less debt related to lease and rental fleet (L&RFD) and floor plan notes payable (FPNP), and "Adjusted Net Debt" to present the amount of Adjusted Total Debt net of cash and cash equivalents on the Company's balance sheet. The FPNP is used to finance the Company's new and used inventory, with its principal balance changing daily as vehicles are purchased and sold and the sale proceeds are used to repay the notes.  Consequently, in managing the business, management views the FPNP as interest bearing accounts payable, representing the cost of acquiring the vehicle that is then repaid when the vehicle is sold, as the Company's credit agreements require it to repay loans used to purchase vehicles when such vehicles are sold.  The Company's lease & rental fleet are fully financed and are either (i) leased to customers under long-term lease arrangements or (ii), to a lesser extent, dedicated to the Company's rental business.  In both cases, the lease and rental payments fully cover the capital costs of the lease & rental fleet (i.e., the principal repayments and interest expense on the borrowings used to acquire the vehicles and the depreciation expense associated with the vehicles), plus a profit margin for the Company. The Company believes excluding the FPNP and L&RFD from the Company's total debt for this purpose provides management a more accurate picture of the Company's capital structure and leverage profile and assists investors in performing analysis that is consistent with financial models developed by Company management and research analysts. "Adjusted Total Debt" and "Adjusted Net Debt" are both non-GAAP financial measures and should be considered in addition to, and not as a substitute for, the Company's debt obligations, as reported in the Company's consolidated balance sheet in accordance with U.S. GAAP. Additionally, these non-GAAP measures may vary among companies and may not be comparable to similarly titled non-GAAP measures used by other companies.

  Twelve Months Ended
EBITDA and Adjusted EBITDA December 31, 2012 December 31, 2011
Net Income (GAAP) $ 62,455 $ 55,213
Provision for income taxes 38,728 34,964
Interest expense 13,017 7,161
Depreciation and amortization 25,016 20,084
(Gain) loss on sale of assets (176) (418)
EBITDA (Non-GAAP) 139,040 117,004
Adjustments:    
Interest expense associated with FPNP (8,449) (3,959)
Adjusted EBITDA (Non-GAAP) $ 130,591 $ 113,045

The Company presents EBITDA and Adjusted EBITDA as additional information about its operating results. The presentation of Adjusted EBITDA with an add back of interest expense associated with FPNP, to EBITDA is consistent with management's presentation of Adjusted Total Debt, in each case reflecting management's view of interest expense associated with the FPNP as an operating expense of the Company, and to provide management a more accurate picture of its operating results and to assist investors in performing analysis that is consistent with financial models developed by management and research analysis. "EBITDA" and "Adjusted EBITDA" are both non-GAAP financial measures and should be considered in addition to, and not as a substitute for, net income of the Company, as reported in the Company's consolidated statements of income in accordance with U.S. GAAP. Additionally, these non-GAAP measures may vary among companies and may not be comparable to similarly titled non-GAAP measures used by other companies. 

  Twelve Months Ended
Free Cash Flow  December 31, 2012 December 31, 2011
Net cash provided by (used in) operations (GAAP) $ 219,336 $ (81,369)
Acquisition of property and equipment (170,951) (148,543)
Free cash flow (Non-GAAP) 48,385 (229,912)
Adjustments:    
Draws on floor plan financing, net (20,677) 282,883
Proceeds from L&RFD 144,639 95,661
Principal payments on L&RFD (68,950) (62,754)
Non-maintenance capital expenditures 24,427 34,860
Adjusted Free Cash Flow (Non-GAAP) $ 127,824 $ 120,738

"Free Cash Flow" and "Adjusted Free Cash Flow" are key financial measures of the Company's ability to generate cash from operating its business. Free Cash Flow is calculated by subtracting the acquisition of property and equipment included in the Cash flows from investing activities from Net cash provided by (used in) operating activities. For purposes of deriving Adjusted Free Cash Flow from the Company's operating cash flow, Company management makes the following adjustments: (i) adds back draws (or subtracts payments) on the floor plan financing that are included in Cash flows from financing activities as their purpose is to finance the vehicle inventory that is included in Cash flows from operating activities, (ii) adds back proceeds from notes payable related specifically to the financing of the lease and rental fleet that are reflected in Cash flows from financing activities, (iii) subtracts principal payments on notes payable related specifically to the financing of the lease and rental fleet that are included in Cash flows from financing activities, and (iv) adds back capital expenditures that are for growth and expansion (i.e. building of new dealership facilities and the development of the SAP enterprise software) that are not considered necessary to maintain the current level of cash generated by the business. "Free Cash Flows" and "Adjusted Free Cash Flows" are both presented so that investors have the same financial data that management uses in evaluating the Company's cash flows from operating activities. "Free Cash Flow" and "Adjusted Free Cash Flow" are both non-GAAP financial measures and should be considered in addition to, and not as a substitute for, net cash provided by (used in) operations of the Company, as reported in the Company's consolidated Statement of Cash Flows in accordance with U.S. GAAP. Additionally, these non-GAAP measures may vary among companies and may not be comparable to similarly titled non-GAAP measures used by other companies. 

Invested Capital and Adjusted Invested Capital  December 31, 2012 December 31, 2011
Total Shareholders' equity (GAAP) $ 607,946 $ 531,234
Adjusted net debt (Non-GAAP) (72,049) (67,558)
Adjusted Invested Capital (Non-GAAP) $ 535,897 $ 463,676

"Adjusted Invested Capital" is a key financial measure used by the Company to calculate its return on invested capital. For purposes of this analysis, management excludes L&RFD, FPNP, and cash and cash equivalents, for the reasons provided in the debt analysis above and uses Adjusted Net Debt in the calculation. The Company believes this approach provides management a more accurate picture of the Company's leverage profile and capital structure, and assists investors in performing analysis that is consistent with financial models developed by Company management and research analysts. "Adjusted Total Debt" and "Adjusted Invested Capital" are both non-GAAP financial measures. Additionally, these non-GAAP measures may vary among companies and may not be comparable to similarly titled non-GAAP measures used by other companies. 

CONTACT: Rush Enterprises, Inc., San Antonio
         Steven L. Keller, 830-626-5226

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