Rush Enterprises, Inc. 2007 Annual Report Rush Enterprises, Inc. 555 IH 35 South, Suite 500 New Braunfels, TX 78130 (830) 626-5200 www.rushenterprises.com CORPORATE AND SHAREHOLDER INFORMATION RUSH ENTERPRISES, INC. AND SUBSIDIARIES Board of Directors Executive Officers Shareholder Information ® ABOUT THE COMPANY Rush Enterprises (listed on NASDAQ : RUSHA and RUSHB) operates Rush Enterprises, Inc. W. Marvin Rush Executive Offices the largest network of heavy- and medium-duty truck dealerships Chairman W. Marvin Rush Rush Enterprises, Inc. Chairman P.O. Box 34630 in North America, representing industry-leading brands including W. M. “Rusty” Rush San Antonio, TX 78265 W. M. “Rusty” Rush President and Chief Executive Officer (830) 626-5200 Peterbilt, GMC, Hino, Isuzu, Ford, UD and Volvo. Rush also oper- President and Chief Executive Officer Thomas A. Akin Independent Public ates a John Deere construction equipment dealership in Houston, Partner Martin A. Naegelin, Jr. Accountants Executive Vice President Akin, Doherty, Klein and Feuge, P.C. Ernst & Young LLP Texas. Our current operations include a network of 49 dealership San Antonio, TX Ronald J. Krause Steven L. Keller locations in Alabama, Arizona, California, Colorado, Florida, Georgia, Former President and Vice President Corporate and Chief Operating Officer Chief Financial Officer Securities Counsel New Mexico, Oklahoma, Tennessee and Texas. These dealerships Associates Corporation and Treasurer Fulbright & Jaworski L.L.P. of North America San Antonio, TX provide an integrated, one-stop source for the retail sales of Daryl J. Gorup Harold D. Marshall Senior Vice President Annual Meeting new and used heavy- and medium-duty trucks and construction Former President and Dealership Operations The annual meeting of shareholders of Chief Operating Officer the Company will be held at David C. Orf equipment; aftermarket parts, service and body shop capabilities; Associates First Capital Corporation 10:00 A.M. CDT on May 20, 2008 Senior Vice President at Rush Enterprises, Inc. Marketing, Fleets and a wide array of financial services, including the financing of truck James C. Underwood Executive Offices Specialized Equipment Former Vice Chairman of 555 IH 35 South, Suite 500 and equipment sales, insurance products, leasing and rentals; Isuzu Commercial Truck of James E. Thor New Braunfels, TX 78130 America, Inc. Senior Vice President upfitting and chrome accessories. Availability of 10-K Report Retail Sales Board Committees Steven L. Keller Scott Anderson Rush Enterprises, Inc. Audit Committee THE RUSH NETWORK as of December 31, 2007 Senior Vice President P. O. Box 34630 Thomas A. Akin* Finance and Insurance San Antonio, TX 78265 Ronald J. Krause (830) 626-5200 Harold D. Marshall J.M. “Spike” Lowe Senior Vice President Shares Listed Compensation Committee Corporate Development Rush Enterprises, Inc.’s common stock Harold D. Marshall* trades on the NASDAQ Global Select Thomas A. Akin Richard D. Hall Marketsm under the symbols RUSHA Ronald J. Krause Vice President and RUSHB. Insurance Nominating Website Rush Truck Center & Governance Committee Derrek Weaver www.rushenterprises.com Rush Equipment Center Rush Headquarters Ronald J. Krause* Chief Compliance Officer Thomas A. Akin Vice President of Legal Affairs Harold D. Marshall and Secretary James C. Underwood *Committee Chair Forward-looking Statements Certain statements in this Annual Report are “forward-looking statements” as defined In memoriam: in the Private Securities Litigation Reform Act of 1995. Important factors that could This annual report is dedicated cause actual results to differ materially from those in the forward-looking statements to John D. Rock. are described in the forward-looking statements section on page 52. CHAIRMAN’S LETTER ou might have noticed that the front cover of our annual report is diff erent from covers you’ve seen in previous years. Th ey say a picture is worth a thousand words, but we think this cover speaks for itself. It succinctly communicates our philosophy – Experience. Strategy. Results. In other words, the decades of experience and knowledge of our team of employees, combined with an aggres- sive strategy to grow and diversify the business, has and will continue to allow us to achieve superior business results. We do not limit our defi nition of superior business results only to increased profi ts. More importantly, we ask, do our results market slowdown. But that being said, have we built refl ect our ability to withstand a market downturn? a sustainable business model and organization to move Is the business properly prepared to sell products and forward? My answer is yes. service customers given the current market conditions? I have always believed that our people make Are we positioned for future growth? And, of course, the diff erence. Rush Enterprises, Inc. may bear my are we providing a challenging and rewarding work family’s name, but it is our family of employees who environment for our people? keep it successful. We will continue to invest in our Our team of experienced professionals people, and we recognize that our success is dependent outperformed the Class 8 truck market in 2007. on their individual contributions to common goals. Our Due to their hard work, our revenues remained above cultural focus has helped create a common ideology $2 billion, making 2007 the second-most profi table that recognizes “the customer is the boss” and functions year in Rush Enterprises’ 42-year history. We would on the principles of excellence, fairness, productivity not have been able to achieve the results we did in and positive attitude. Our employees are committed 2007 just a few years ago. During the last market to these common values and to the success of the downturn, our earnings plummeted due in large part organization. 2007 is a tribute to their success. to our low absorption rate. We learned from that experience, and since then, our people have focused on improving our absorption rate, which is now at a record 105%. No doubt, our experience and strategies W. Marvin Rush allowed us to favorably withstand this most recent Chairman EXPERIENCE. STRATEGY. RESULTS. RUSH ENTERPRISES, INC. 2007 ANNUAL REPORT 3 CHIEF EXECUTIVE OFFICER’S LETTER When we sell a truck, many buyers purchase additional accessories in our parts departments. Th ose parts, in turn, are often installed on the truck by our service departments. Th erefore, a decline in truck sales know it may seem odd to you that I believe 2007 has a negative eff ect on parts and service sales. In 2007, was the best year in the company’s history. Industry our absorption rate held even with 2006 at a healthy and economic conditions deteriorated rapidly during 105%, which means we were able to increase our parts 2007, resulting in a 46% decline in heavy-duty truck and service business to off set the negative impact that sales and an 11% decline in medium-duty truck sales. the decline in truck sales had on parts and service But despite this signifi cant market downturn, our sales. Th e last time the truck industry experienced earnings only decreased 12%. a signifi cant downturn in truck sales, our absorption A year ago, my letter to the shareholders of was near 80%. Consequently, our profi tability declined Rush Enterprises discussed how our company was better substantially when truck sales dropped off . We learned prepared than ever to operate profi tably in a declining from experience, and we proved in 2007 that we were truck market due to the strategies we implemented over better prepared. the past fi ve years to diversify our earnings. Th ese strate- Another strategy to diversify our earnings gies included geographic network expansion, growth of base is to expand our geographic footprint by adding our medium-duty business, focus on vocational markets new territories and constructing new dealerships in and increased absorption in dealership operations. our areas of operation. In 2007, we acquired dealerships I am proud to say that the successful implementation in Waco, Texas and San Luis Obispo, California, of those strategies led us to superb fi nancial results in increasing our presence in the central and western parts 2007 considering the signifi cant decline in the Class 8 of the U.S. In addition, we opened a new dealership truck market. While revenues from truck sales dropped in Pueblo, Colorado, expanding our presence in substantially during 2007 as expected, our parts, service that state. We have also announced the acquisition and body shop revenue grew by 9%. Th is growth was of two dealerships in Charlotte, North Carolina, with key to maintaining a healthy profi t level in 2007. Peterbilt, International, Hino and Isuzu franchises, Our goal of being the premier service provider expanding our network further into the Southeast. in our industry requires us to off er exceptional service We are expanding existing locations in to support a range of customer needs. I have repeatedly Oklahoma and Arizona and evaluating other said that “trucks don’t sell service, service sells trucks.” locations for expansion. As dealerships mature, the need Our service programs assist our customers in driving arises for additional shop space. Over time, additional effi ciencies into their own organizations, which is shop space translates into additional sales from the parts, especially important during an industry downturn. service and body shop departments. Any expansion We have worked hard for many years to will initially decrease a location’s absorption rate, but increase the absorption rate of our dealerships. I believe ultimately, the increased capacity will generate additional that absorption rate is the most important metric we use revenue. Our investment in our facilities is crucial to to evaluate how effi ciently our dealerships are operating. our continued success. Absorption rate is defi ned as the gross profi ts from parts, Our expansion into the medium-duty market service and body shop functions divided by the total is an example of how we can take advantage of our costs of running a dealership.