UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission file number 0-20797

RUSH ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:  (830) 626-5200

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 or the Act).   Yes  o    No  ý

The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2003 was $39,874,477 based upon the last sales price on June 30, 2003 on the NASDAQ National Market of $4.55 for the Company’s Class A Common Stock and $4.82 for the Company’s Class B Common Stock.

The registrant had 7,055,726 shares of Class A Common Stock and 7,055,812 shares of Class B Common Stock outstanding on March 8, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of registrant’s definitive proxy statement for the registrant’s 2004 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission not later than April 30, 2004, are incorporated by reference into Part III of this Form 10-K.

RUSH ENTERPRISES, INC.

Index to Form 10-K

Year ended December 31, 2003

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Certain statements contained in this Form 10-K, including, but not limited to, statements made in this Item 1, “Business,” and those made in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended.  Specifically, all statements other than statements of historical fact included in this Form 10-K regarding the Company’s financial position, business strategy and plans and objectives of management of the Company for future operations are forward-looking statements.  These forward-looking statements are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management.  When used in this report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements.  Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, competitive factors, general economic conditions, cyclicality, economic conditions in the new and used truck and equipment markets, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors described herein and in the Company’s Registration Statement on Form S-1 (File No. 333-03346) and in the Company’s annual, quarterly and other reports filed with the Securities and Exchange Commission (collectively, “cautionary statements”).  Although the Company believes that its expectations are reasonable, it can give no assurance that such expectations will prove to be correct.  Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, or intended.  All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements.  The Company does not intend to update these forward-looking statements.

PART I

Item 1.  Business

References herein to the “Company,” “Rush Enterprises,” “Rush,” “we,” “our” or “us” mean Rush Enterprises, Inc., a Texas corporation, its subsidiaries and Associated Acceptance, Inc., the insurance agency affiliated with the Company, unless the context requires otherwise.

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Access to Company Information

Rush electronically files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (SEC).  The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically, including Rush.

Rush makes available, free of charge, through its website the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports.  These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.  Rush’s website address is http://www.rushtruckcenters.com.  The information contained on our website, or on other websites linked to our website, is not part of this document.

General

We are a full-service, integrated retailer of premium transportation and construction equipment and related services.  As the leading supplier of trucks manufactured by Peterbilt Motors Company, a division of PACCAR, Inc. (“Peterbilt”), we accounted for approximately 20.3% of all new Class 8 (defined by the American Automobile Manufacturers Association as trucks with a minimum gross vehicle weight rating above 33,000 pounds) Peterbilt trucks sold in the United States in 2003.  In 1997, we acquired our first Deere & Company (“John Deere”) construction equipment dealership (Rush Equipment Center) in Houston, Texas and had grown to become a major supplier of John Deere construction equipment in Texas and Michigan.  We sold our five Michigan construction equipment stores during 2002.  Through our strategically located network of Rush Truck Centers and our Rush Equipment Center, we provide one-stop service for the needs of our customers, including retail sales of new and used transportation and construction equipment, aftermarket parts sales, service and repair facilities and financing, leasing and rental, and insurance services.

Our Rush Truck Centers are principally located in high traffic areas throughout the southern United States. Our Rush Equipment Center is located in Houston, Texas.  We provide leasing and rental services through our Rush Leasing and Rental Division at our one-stop Rush Truck Centers and our Rush Equipment Center.  Retail financing of trucks and construction equipment, as well as a line of insurance products, is arranged through our Rush Financial and Insurance Division.

Our business strategy, based upon providing the customer with competitively priced products supported with timely and reliable service, has enabled us to increase revenues at a compounded annual growth rate of 2.4% since 1999, despite a compounded annual decrease of approximately 13% in industry wide United States heavy-duty truck sales during the same period.  We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers and Rush Equipment Center as we extend our geographic focus through strategic acquisitions of new locations and expansions of our existing facilities.

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All of our business operations are currently conducted through four separate divisions: the Rush Truck Center Division, the Rush Equipment Center Division, the Rush Leasing and Rental Division and the Rush Financial and Insurance Division.

On November 12, 2002, the Company announced that it would sell its Michigan John Deere construction stores as a result of continuing deterioration in the Michigan construction equipment market, its location in regards to the Company’s other operations and its plans for future expansion.  The sale of the Michigan construction equipment stores was substantially complete on December 31, 2002.  Prior to the sale, these stores were part of the Construction Equipment segment.  The Construction Equipment segment has been restated for all periods presented to exclude the Michigan stores.

On November 12, 2002, the Company also announced its decision to discontinue its Retail segment, which operated three farm and ranch retail stores in Seguin, Hockley and Denton, Texas.  The Retail segment did not fit into our long-term plans of growing our core heavy-duty truck and construction equipment businesses.  The Denton store was closed in December 2002, the Hockley store began liquidating inventory during November 2002 and completed the liquidation on March 9, 2003. The Company continues to actively market the sale of the Seguin store and expects to sell it prior to December 31, 2004.  As a result of these actions, the Retail segment is no longer reported as a separate business segment.

Rush Truck Center Division.  Since commencing operations as a Peterbilt heavy-duty truck dealer over 38 years ago, we have grown to operate Rush Truck Centers at 37 locations, which primarily sell Peterbilt Class 8 heavy-duty trucks in Texas, Colorado, Oklahoma, California, Florida, Arizona, New Mexico and Alabama. Our Rush Truck Centers are strategically located to take advantage of increased cross-border traffic between the United States and Mexico resulting from implementation of the North American Free Trade Agreement (“NAFTA”) in 1994.  During 2003, our Rush Truck Center Division accounted for approximately $734.8 million, or 90.1%, of our total revenue.

Rush Equipment Center Division.  Since commencing operations as a John Deere dealer in 1997, we had grown to operate six Rush Equipment Centers located in Texas and Michigan.  As previously reported, we sold our five Michigan construction equipment stores during 2002, recording a net loss from discontinued operations of $3.3 million (see Note 3 of Item 8).  Our Rush Equipment Center in Houston, Texas will continue to provide a full line of construction equipment for light to medium sized applications. Our primary products include the following: John Deere backhoe loaders, hydraulic excavators, crawler-dozers and four-wheel drive loaders.  During 2003, our Rush Equipment Center Division accounted for approximately $40.6 million, or 5.0%, of our total revenue.

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Rush Leasing and Rental Division.  We provide a broad line of product selections for lease or rent, including Class 8, Class 7 and Class 6 Peterbilt trucks, and a full array of John Deere construction equipment products, including a variety of construction equipment trailers and heavy-duty cranes.  Our lease and rental fleets are offered primarily through our Rush Truck Centers and the Rush Equipment Center on a daily, monthly or long-term basis.  During 2003, our Rush Leasing and Rental Division accounted for approximately $33.7 million, or 4.1%, of our total revenue.

Rush Financial and Insurance Division.  We offer third-party financing to assist customers in purchasing a new or used truck or piece of construction equipment.  Additionally, we sell a complete line of property and casualty insurance, including collision and liability insurance on trucks, cargo insurance, and credit life insurance.  During 2003, our Rush Financial and Insurance Division accounted for approximately $6.3 million, or 0.8%, of our total revenue.

We were founded and incorporated in 1965 in Texas and our three senior executives jointly have 72 years of experience in the industry.  We currently conduct business through numerous subsidiaries, all of which are wholly owned, directly or indirectly, by us.  Our principal offices are located at 555 IH 35 South, New Braunfels, Texas 78130.

Industry Overview

We currently operate in the heavy-duty trucks and construction equipment markets. There has historically been a high correlation in both of these markets between new product sales and the rate of change in U.S. industrial production and the U.S. gross domestic product.

Heavy-Duty Truck Market

The Company serves the entire U.S. retail heavy-duty truck market which is dependent on a number of factors relating to general economic conditions, including fuel prices, government regulation, interest rate fluctuations, economic recessions and customer business cycles. In addition, unit sales of new trucks have historically been subject to substantial cyclical variation based on such general economic conditions.  According to data published by R.L. Polk, an industry research and publication firm, the overall domestic heavy-duty truck market decreased from approximately 253,000 new Class 8 unit sales in 1999 to approximately 145,000 new Class 8 unit sales in 2003 (a 13.0% compounded decrease).  During 2003, domestic heavy-duty truck sales decreased approximately 3.3% from 2002 and are expected to increase to approximately 186,000 units during 2004.  Our primary product line is Peterbilt trucks, which, according to R.L. Polk, accounted for approximately 12.3% of all new heavy-duty truck registrations in 2003.  Historically, Peterbilt’s market share has been significantly higher than its national average in Rush’s areas of responsibility.

As a result of our aggressive sales approach, new store openings and acquisitions in new markets, our share of the heavy-duty truck market increased from approximately 2.0% of the overall heavy-duty market share in the U.S. to an overall heavy-duty market share in the U.S. of 2.5% in 2003.

Typically, Class 8 trucks are assembled by the manufacturer utilizing certain components manufactured by other companies, including engines, transmissions, axles, wheels and other components.  As trucks and truck components have become increasingly complex, including the use of computerized controls and diagnostic systems, the ability to provide state-of-the-art service for a wide variety of truck equipment has become a competitive factor in the industry. Such service requires a

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significant capital investment in advanced equipment, parts inventory and a high level of training of service personnel.  Environmental Protection Agency (“EPA”) and Department of Transportation (“DOT”) regulatory guidelines for service processes, including body shop, paint work and waste disposal, require sophisticated operating and testing equipment to ensure compliance with environmental and safety standards. Additionally, we believe that the trend of leasing and renting Class 8 trucks will continue as fleets, particularly private fleets, seek to establish full-service leases or rental contracts which provide for turn-key service including equipment, maintenance, and potentially, fuel, fuel tax reporting and other services.  As a result, differentiation between truck dealers has become less dependent on pure price competition and is increasingly based on their ability to offer a wide variety of services to their clients. Such services include easily accessible, efficient and sophisticated truck service and replacement parts, financing for truck purchases, leasing and rental programs and the ability to accept multiple unit trade-ins related to large fleet purchases.  We believe our one-stop concept and the size and diversity of our dealer network gives us a competitive advantage in providing these services.

The EPA mandated that heavy-duty engine manufacturers meet new, stricter emissions guidelines, regarding nitrous oxides, for all engines built subsequent to October 1, 2002.  These new guidelines increased the price of new heavy-duty trucks approximately $3,000 to $8,000 per unit and possibly reduced the operating efficiency and life of heavy-duty trucks.  As a result, the Company experienced stronger than usual truck sales during the second half of 2002 as customers made purchases of trucks manufactured under the “old” emission laws.  This accelerated demand in the second half of 2002 was followed by a short-term decrease in demand during the first half of 2003.

Subsequent to the guidelines that were effective October 1, 2002, the EPA has placed additional guidelines, further restricting the emissions of nitrous oxides for all engines built subsequent to January 1, 2007.  Historically, the industry has experienced an accelerated demand for trucks in the months preceding the effective date of the change in EPA guidelines, followed by a short-term decrease in demand in the months subsequent to the change. The Company does not expect the change in emission guidelines to have an affect on its 2004 results from operations.  The Company believes it is too early to determine how the change in emission guidelines will affect its results from operations subsequent to 2004.

Subsequent to this expected short-term decline in demand, industry sales improved during the second half of 2003.  The heavy-duty truck industry as a whole expects to deliver approximately 186,000 new trucks in the U.S. during 2004, compared to approximately 145,000 new trucks in 2003 and 150,000 new trucks in 2002.  The 2002 and 2003 new heavy-duty truck sales totals were the lowest heavy-duty truck sales totals in the last nine years.  We believe that the new heavy-duty truck sales industry will begin to improve in 2004 and that we will perform at a level above our competitors.

Management believes the long-term growth prospects for the heavy-duty truck industry remain positive.  Factors, which management believes favor the continued long-term growth in the heavy-duty truck industry, include the following:

•                                          growth in demand for consumer and industrial goods, in part as a result of the internet, which has fostered a desire by consumers to receive home delivery of a wider selection of packages;

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•                                          competitive pressures for “just in time” manufacturing processes where U.S. manufacturers are demanding faster, yet less costly, small shipment services;

•                                          deregulation in the trucking industry leading to a proliferation of freight haulers;

•                                          the rise of intermodal service which utilizes the inherent advantages of both highway and rail transportation to provide consumers with a consistent and low cost method to transport their goods; and

•                                          the significant increase of cross-border truck traffic between Mexico and the United States since NAFTA became effective in January of 1994.

Construction Equipment Market

Through our Rush Equipment Center, which is an authorized John Deere dealer, we serve the Houston, Texas and surrounding area for retail sales of construction equipment targeted towards light and medium applications.  According to data compiled by John Deere, approximately 1,656 units of construction equipment were put into use in our area of responsibility in 2003 compared to 1,387 in 2002. The construction equipment industry expects to sell approximately 1,700 to 1,800 new construction equipment units in the Houston area during 2004.  The Company’s market share in the Houston area was 17.5% in 2003 and 14.6% in 2002.

Rush Equipment Center has the exclusive right to sell new John Deere equipment and parts within its assigned area of responsibility, which means competition within its market comes primarily from dealers of competing manufacturers and rental companies.

The customer base of John Deere equipment users is diverse and includes residential and commercial construction businesses, independent rental companies, utility companies, government agencies, and various petrochemical, industrial and material supply businesses.  Industry statistics suggest that a majority of all construction equipment is owned by a relatively small percentage of the customer base.  Accordingly, John Deere and its dealer group, including the Rush Equipment Center, are aggressively developing more sophisticated ways to serve large fleet owners.

Market factors affecting the construction equipment industry include the following:

•                                          levels of commercial, residential, and public construction activities;

•                                          state and federal highway and road construction appropriations; and

•                                          the consolidation and growth of the construction equipment rental business.

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Business Strategy

Operating Strategy.  Our strategy is to operate integrated dealer networks that primarily market Peterbilt heavy-duty trucks or John Deere construction equipment and provide complementary products and services by emphasizing the following key elements:

•                                          One-Stop Centers.  We have developed our truck and construction equipment locations as “one-stop centers” where, at one convenient location, our customers can purchase new or used heavy-duty trucks or construction equipment; finance, lease or rent trucks or construction equipment; purchase aftermarket parts and accessories and have service performed by certified technicians.  We believe that this full service strategy also helps to mitigate cyclical economic fluctuations because the parts and service sales at our Rush Centers generally tend to be less volatile than our new and used truck and construction equipment sales.  We intend to continue to emphasize this one-stop concept.

•                                          Branding Program.  We employ a branding program for our facilities, designating each as a Rush Truck Center or Rush Equipment Center through distinctive signage and uniform marketing programs, to take advantage of our existing name recognition and to communicate the standardized high quality of our products and reliability of our services throughout our dealership networks. Our branding program extends to our services as well as our facilities.  We believe that this branding strategy will increase our market recognition and encourage our customers to utilize multiple locations throughout our dealership networks.

•                                          Management by Dealership Units.  We measure and manage the business operations of each of our dealerships according to the specific business units operating at that location.  At each of our dealerships, we operate one or more of the following business units: new sales, used sales, parts, service, body shop, leasing, rental and financial services.  We believe that this system enhances the profitability of all aspects of a dealership and increases our overall operating margins.  Operating goals for each business unit at each of our locations are established annually and managers are rewarded for performance accordingly.

•                                          Integrated Management Information Systems.  In order to efficiently operate separate business units within each dealership, we rely upon our management information systems to determine and monitor appropriate inventory levels and product mix at each Rush Center.  Each Rush Center maintains a centralized real-time inventory tracking system that is accessible simultaneously by all locations. Our automated reordering system assists each Rush Center in maintaining the proper inventory levels and permits inventory delivery to each location, or directly to customers, typically within 24 hours from the time the order is placed.  In addition, by actively monitoring market conditions, assessing product and expansion strategies and remaining abreast of changes within the market, we are able to proactively address market-by-market changes by realigning and, if necessary, adding product lines and models.

Growth Strategy. Through the implementation of our expansion and acquisition initiatives, we have grown to operate a large, multistate, full-service dealership network in the heavy-duty truck markets.

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We intend to continue to grow our business internally and through acquisitions by: expanding the product offerings available at, and capabilities of, our existing Rush Truck and Rush Equipment Center; opening new Rush Truck and Rush Equipment Centers in underserved markets within geographic areas we currently serve; and acquiring and rebranding existing third-party dealerships within new, strategically located geographic areas.

•                                          Expansion of Product Offerings and Capabilities. We intend to continue to expand our product lines within our Rush Truck Centers and Rush Equipment Center by adding those product categories which are both complementary to our Peterbilt and John Deere product lines and well suited to the Rush operating model.  We expanded into the construction equipment industry based on a common customer base among our heavy-duty truck and construction equipment purchasers.  We have also introduced trailer repair and maintenance services and the sale of truck-mounted cranes at certain Rush Truck Centers.  Other recent product line expansions include the introduction of Hino and UD (Nissan) medium-duty truck franchises, as well as, two Autocar heavy-duty truck franchises to our network.

We believe that there are many additional similar product and service offerings that complement our primary product lines. Any product category expansion that we may pursue must satisfy our requirements that the (1) products are of a premium brand; (2) products provide opportunities for incremental income through related servicing, aftermarket sales or financing; and (3) Rush operating controls can be implemented to enhance the financial performance of the business.

•                                          Open New Rush Truck and Equipment Centers in Existing Markets.  We believe that there are opportunities to increase our share of the heavy-duty truck and construction equipment markets by introducing our one-stop centers to underserved markets within the southern United States. Additional dealerships would enable us to enhance revenues from our existing customer base as well as increase the awareness of the Rush brand name for new buyers. We believe there would also be opportunities for cost savings by integrating the inventory management and operations of these new locations with those of our existing networks.

•                                          Expand into New Geographic Areas.  We plan to continue to expand our Rush Truck Center network and build a Rush Equipment Center network by acquiring additional dealerships in geographic areas contiguous to our current operations or otherwise strategically located along major interstate highways.  Thus far, we have successfully expanded our presence from our Texas base into a coast-to-coast network of Rush Truck Centers.  We believe the geographic diversity of our network has significantly expanded our customer base while ameliorating the effects of local economic cycles. Geographic diversification supports the sale of heavy-duty trucks, construction equipment and related parts by allowing us to allocate our inventory among the geographic regions we serve based on market demand within these regions.

In identifying new areas for expansion, we analyze the target market’s level of new heavy-duty truck registrations and construction equipment purchases, customer buying and leasing trends and the existence of competing franchises.  We also assess the potential performance of a parts and service center to determine whether a market is

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suitable for a Rush dealership. After a market has been strategically reviewed, we survey the region for a well-situated location.  Whether we acquire existing dealerships or open new Rush locations, we will introduce the Rush branding program and implement our integrated management system. Geographic expansion is a primary means by which we intend to continue to grow our core business.

Properties

A Rush Truck Center or Rush Equipment Center may be comprised of one or more locations, generally in close proximity, in the same metropolitan area.  The following is a list of our Rush Truck Center and Rush Equipment Center locations as of December 31, 2003:

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Our administrative offices are currently situated in 28,804 square feet of leased space in New Braunfels, Texas.  We also occupy 3,750 square feet of leased space in San Antonio, Texas as administrative offices for our insurance services.  The D&D Farm and Ranch Supermarket in Seguin, Texas (“D&D”) occupies 26,900 square feet of building space.  We also own and operate a ranch of approximately 6,500 acres in Cotulla, Texas.

Rush Operating Divisions

We are managed and operated though four distinct divisions, which are described below.

Rush Truck Center Division

Our Rush Truck Center Division is the operating division responsible for sales of new and used heavy-duty and medium-duty trucks, as well as related parts and services.

New Truck Sales.  New heavy-duty truck sales represent the largest portion of our business, accounting for approximately $367.6 million, or 45.1%, of our total revenues for 2003.  Rush Truck Centers primarily sell new Class 8 heavy-duty Peterbilt trucks, which constitute more than 95% of all new trucks sold by us.  The average delivery times for custom-ordered new Peterbilt trucks can vary between 30 days to six months.  We also sell Class 7 Peterbilt trucks, Peterbilt refuse chassis and cement mixer chassis, General Motors Corp. (“GMC”), Hino and UD (Nissan) medium-duty trucks and, at our Tulsa Rush Truck Center, Volvo Class 8 heavy-duty trucks.  Medium-duty truck sales accounted for approximately $53.4 million, or 6.5%, of our total revenues for 2003.  Our customers use heavy-duty and medium-duty trucks to haul virtually all materials, including general freight, petroleum, wood products, refuse and construction materials.

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A majority of our new truck sales are to fleet customers (defined as customers who purchase more than five trucks in any single 12-month period).  Because of our large size, strong relationships with our fleet customers and ability to handle large quantities of used truck trade-ins, we are able to successfully market and sell to fleets nationwide.  We believe that we have a competitive advantage over most other dealers in that we can absorb multiunit trade-ins often associated with fleet sales of new trucks and effectively disperse the used trucks for resale throughout our dealership network. We believe that our attention to customer service and our broad range of trucking services, including our ability to offer truck financing and insurance to our customers, has resulted in a high level of customer loyalty.  Management believes that approximately 70% of our truck sales during 2003 were to repeat customers.

Used Truck Sales.  Used truck sales accounted for approximately $80.7 million, or approximately 9.9%, of our total revenues for 2003.  We primarily sell used Class 8 heavy-duty trucks manufactured by the leading truck manufacturers in the industry, including, but no limited to, Peterbilt; Kenworth Truck Co., a division of PACCAR, Inc. (“Kenworth”); Volvo Trucks of North America, Inc. (“Volvo”); Freightliner Corporation, a subsidiary of Daimler Chrysler AG (“Freightliner”); Mack Trucks, Inc. (“Mack”) and Navistar International Corporation (“Navistar”).  Our management believes that we are well positioned to market used heavy-duty trucks due to our ability to recondition used trucks for resale utilizing the parts and service departments at our Rush Truck Centers and to reallocate our used truck inventory from one Rush Truck Center to another in order to satisfy customer demand. The majority of our used truck fleet is comprised of trucks taken as trade-ins from new truck customers to be used as all or part of such customer’s down payment; the remainder of our used truck fleet is purchased from third parties for resale.

Truck Parts and Service.  Truck-related parts and service revenues accounted for approximately $233.0 million, or approximately 28.6%, of our total revenues for 2003.  We are the sole authorized Peterbilt parts and accessories supplier in each of the markets serviced by our Rush Truck Centers.  The parts business augments our sales and service functions and is a source of recurring revenue.  Each Rush Truck Center carries a wide variety of Peterbilt and other truck parts in its inventory, with an average of approximately 5,000 items from over 50 suppliers at each location.  Rush Truck Centers offer “menu” pricing of service and body shop functions and offer expedited service at a premium price for certain routine repair and maintenance functions.

Our Rush Truck Centers also feature various combinations of fully equipped service and body shop facilities, the combination and configuration of which varies by location, capable of handling a broad range of truck repairs on most makes and classes of trucks.  Each Rush Truck Center is a Peterbilt designated warranty service center and most are also authorized service centers for other manufacturers, including the following: Caterpillar, Inc. (“Caterpillar”); Cummins Engine, Inc. (“Cummins”); Detroit Diesel Corporation (“Detroit Diesel”); Eaton Corporation and Rockwell International Corporation.  We have approximately 500 service bays, including 18 paint booths, throughout our Rush Truck Center network.

We perform both warranty and nonwarranty service work. The cost of warranty work is reimbursed by the manufacturer at retail consumer rates. We estimate that approximately 18% of our truck service functions are performed under manufacturers’ warranties.  All service performed at our Rush Truck Centers is done by technicians who have been certified by our suppliers.

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Rush Equipment Center Division

Our Rush Equipment Center Division is the operating division responsible for sales of new and used construction equipment as well as related parts and services.

New Construction Equipment Sales.  New construction equipment sales accounted for approximately $25.5 million, or 3.1%, of our total revenues for 2003.  Our Rush Equipment Center carries a complete line of John Deere construction equipment.  A new piece of John Deere construction equipment typically ranges in price from $20,000 for a skidsteer to $500,000 for an excavator.  We carry a full line of complementary construction equipment manufactured by other suppliers to augment our John Deere product line.  We sell construction equipment to a diverse customer base including residential and commercial construction businesses, utility companies, government agencies, and various petrochemical, industrial and material supply businesses.  We believe that many of our Rush Truck Center customers also use construction equipment, and we aggressively market our construction equipment product offerings to those customers.

We believe that John Deere’s reputation for manufacturing quality construction equipment attracts new and repeat customers who value lower maintenance and repair costs and a higher residual value at trade-in.  We increase this product loyalty with an operating strategy similar to the operating strategy used by our Rush Truck Centers that focuses on providing fast, reliable service in a familiar setting.  We believe that our operating strategy will enable us to both increase our customer base and generate repeat business for all product offerings.

Used Construction Equipment Sales. Used construction equipment sales accounted for approximately $2.8 million, or 0.3%, of our total revenues for 2003.  We sell used construction equipment manufactured by several of the leading manufacturers, including John Deere, Case Corporation (“Case”), Caterpillar, and Komatsu, Ltd. (“Komatsu”).  Our used construction equipment inventory is derived from trade-ins from our construction equipment customers and purchases from third parties.

Construction Equipment Parts and Service.  Construction equipment-related parts and service revenues accounted for approximately $11.8 million, or 1.4%, of our total revenues for 2003.  Our Rush Equipment Center carries in its inventory a wide variety of John Deere and other parts, with over 13,000 items from over 15 suppliers.  We are the sole authorized John Deere parts and accessories supplier in the Rush Equipment Center market.  We maintain a fully equipped John Deere designated warranty service operation capable of handling repairs on most types of construction equipment at our Rush Equipment Center.  We enhance our service presence with field service trucks and technicians who are capable of making on-site repairs at our customers’ location.

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Rush Leasing and Rental Division

Our Rush Leasing and Rental Division is the operating division responsible for the leasing and rental of heavy-duty trucks and construction equipment.

Truck Leasing and Rental.  Truck leasing and rental revenues accounted for approximately $33.1 million, or 4.1%, of our total revenues for 2003.  We engage in full-service Peterbilt truck leasing under the PacLease trade name at eight of our Rush Truck Centers and are the largest PacLease dealer in the United States.  Rush Leasing and Rental Division customers provide additional parts sales and service work at Rush Truck Centers because all of our leases require all service and maintenance for the leased trucks to be performed at our facilities (or at facilities outside our service area, as we direct). Rented trucks are also generally serviced at our facilities. We have increased our lease and rental fleet, including contract maintenance, from less than 100 trucks in 1993 to approximately 1,397 trucks as of December 31, 2003.  As of December 31, 2003, we owned approximately 51% of our lease and rental fleet, and leased the remaining trucks in our fleet directly from PACCAR Financial.  Currently, the average age of trucks in our lease and rental fleet is approximately 33 months.  Generally, we hold trucks in our lease and rental fleet for approximately five years and then sell such used trucks to the public through our used sales operations at our Rush Truck Centers. Historically, we have realized gains on the sale of such trucks in excess of the cost of the purchase option contained in our leases with Peterbilt or the book value of trucks owned by the Company.

Construction Equipment Rental.  Construction equipment rental revenues accounted for approximately $0.6 million, or 0.07%, of our total revenues for 2003.  Our rental contracts require that all parts sales, service and maintenance for our rental construction equipment be performed at our facilities or at other facilities as we direct.  Thus, construction equipment rental customers create additional parts sales and service work at our Rush Equipment Centers.  Our construction equipment rental fleet consisted of approximately 12 pieces of equipment as of December 31, 2003.  Currently, the average age of the construction equipment in our rental fleet is approximately 25 months.

We offer our customers both long-term and short-term rentals, as well as rental purchase options.  We believe that the availability of a well-maintained rental fleet allows our customers to more effectively manage their business operations and assets by obtaining construction equipment on an as-needed basis.

Rush Financial and Insurance Division

Our Rush Financial and Insurance Division is the operating division responsible for arranging third-party financing and insurance for both our heavy-duty truck and construction equipment product offerings.

We offer our customers products that assist them in purchasing new or used trucks and construction equipment. This division accounted for approximately $6.3 million, or 0.8%, of our total revenue for 2003. Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of our operating profits.

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New and Used Truck and Construction Equipment Financing.  Primarily through Citicapital and PACCAR Financial, we arranged customer financing for approximately $147.4 million, or 29.4%, of our total new and used truck sales in 2003, an increase of 14.7% from approximately $128.5 million in 2002.  Approximately 79% of these truck finance contracts related to new truck sales and the remainder related to used truck sales.  Generally, truck finance contracts are memorialized through the use of installment contracts, which are secured by the trucks financed, and generally require a down payment of 10% to 30% of the value of the financed truck, with the remaining balance financed over a two to five year-period.  The majority of finance contracts are sold without recourse to the Company.  The Company’s recourse liability, related to finance contracts sold with recourse to the Company, is limited to 5% to 20% of the outstanding amount of each note initiated on behalf of the finance company.  The Company provides for an allowance for repossession losses and early repayment penalties.

In addition, through The CIT Group, Citicapital, John Deere Credit and others, we arranged customer financing for approximately $17.7 million, or 60.0%, of our total new and used construction equipment sales in 2003.  Generally, construction equipment finance contracts are memorialized through the use of installment or lease contracts, which are secured by the construction equipment financed, and generally require a down payment of 0% to 10% of the value of the financed piece of construction equipment, with the remaining balance being financed over a three to five-year period.  All finance contracts for construction equipment are assigned without recourse.

Insurance Agency Services.  We sell a complete line of property and casualty insurance to our customers as well as to the general trucking public.  Our agency is licensed to sell truck liability, general liability, collision and comprehensive, workers’ compensation, cargo, credit life and health and occupational accident insurance coverages throughout the Rush operating territory. We serve as sales representatives for a number of leading insurance companies including the Great American Insurance Companies, Hartford Insurance Group and American General Financial Group. Our average renewal rate during 2003 was 72%.

Sales and Marketing

Our established expansion and acquisition strategy and long history of operations in the heavy-duty truck business have resulted in a strong customer base that is diverse in terms of geography, industry and scale of operations.  Rush Truck Centers’ customers include owner-operators, regional and national fleets, corporations and local governments.  During 2003, no single customer of Rush Truck Centers accounted for more than 10.0% of our total truck sales by dollar volume.  Our Rush Equipment Center’s customer base is similarly diverse and, during 2003, no single Rush Equipment Center customer accounted for more than 10.0% of our total construction equipment sales by dollar volume.  We generally promote our products and related services through our sales staff, trade magazine advertisements and attendance at industry shows.

We believe that the consistently reliable service received by our customers, our longevity and our geographic diversity have resulted in increased market recognition of the “Rush” brand name and have served to reinforce customer loyalty. During 2003, the majority of our truck sales were to repeat customers.  In an effort to enhance our name recognition and to communicate the standardized high level of quality products and services provided at our Rush Centers, we implement our brand name concept at each of our dealerships.  Each of our dealerships is identified as either a Rush Truck Center

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or Rush Equipment Center. In Houston, Texas, we are making a concerted effort to target our products and services to existing truck customers that are also involved in the construction business.

Facility Management

Personnel.  Each Rush Truck Center and the Rush Equipment Center is managed by a general manager who oversees the operations, personnel and the financial performance of the location, subject to the direction of the Company’s corporate office. Additionally, each Rush Truck Center is typically staffed by a sales manager, parts manager, service manager, sales representatives, parts employees, and other service and make ready employees. The sales staff of each Rush Truck Center and the Rush Equipment Center is compensated on a salary plus commission basis, with a high percentage of compensation based on commission, while the general manager, parts manager and service manager receive a combination of salary and performance bonus, with a high percentage of compensation based on the performance bonus. The Company believes that its employees are among the highest paid in their respective industries.

General managers annually prepare detailed monthly forecasts and monthly profit and loss statements based upon historical information and projected trends. An element of each general manager’s compensation is determined by meeting or exceeding these operating plans. During the year, general managers regularly review their facility’s progress with senior management and make appropriate adjustments as needed.  Most employees of the Company receive annual performance evaluations.

The Company has been successful in retaining its senior management, general managers and other employees. To promote communication and efficiency in operating standards, general managers and members of senior management attend several Company-wide strategy sessions per year. In addition, management personnel attend various industry-sponsored leadership and management seminars and receive continuing education on Peterbilt products, John Deere products, marketing strategies and management information systems.

Members of senior management regularly travel to each location to provide on-site management and support. Each location is audited regularly for administrative record-keeping, human resources and environmental compliance matters. The Company has instituted succession planning pursuant to which employees in each Rush Truck and Equipment Center are groomed as assistant managers to assume management responsibilities in existing and future dealerships.

Purchasing and Suppliers.  The Company believes that pricing is an important element of its marketing strategy. Because of its size, the Rush Truck Center Division benefits from volume purchases at favorable prices that permit it to achieve a competitive pricing position in the industry. The Company purchases its Peterbilt heavy-duty truck inventory and Peterbilt parts and accessories directly from PACCAR.  All other manufacturers’ parts and accessories, including those of Cummins, Detroit Diesel, Caterpillar and others, are purchased through wholesale vendors or from PACCAR, who buys such products in bulk for resale to the Company and other Peterbilt dealers. All purchasing, volume and pricing levels and commitments are negotiated by personnel at the Company’s corporate headquarters. The Company has been able to negotiate favorable pricing levels and terms, which enables the Company to offer competitive prices for its products.

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The Company purchases all of its John Deere construction equipment inventory and John Deere parts directly from John Deere.  All other construction equipment manufacturers’ parts and accessories are purchased by the Company through wholesale vendors.

Management Information Systems.  Each Rush Truck Center and the Rush Equipment Center maintains a centralized real-time inventory tracking system which is accessible simultaneously by all locations and by the Company’s corporate office. The Company utilizes its management information systems to monitor the inventory level at each of its facilities. From information assimilated from the Company’s management information systems, management has developed a model reflecting historic sales levels of different product lines. This model enables management to identify the appropriate level and combination of inventory and forms the basis of the Company’s operating plan. The Company’s management information systems and databases are also used to monitor market conditions and sales information and assess product and expansion strategies.

Information received from state and regulatory agencies, manufacturers and industry contacts allows the Company to determine market share statistics and gross volume sales numbers for its products as well as those of competitors. This information impacts ongoing operations because management remains aware of changes within the Company’s market and is able to react accordingly by realigning product lines and by adding new product lines and models.

Distribution and Inventory Management.  The Company utilizes its real-time inventory management tracking system to maintain a close link between each Rush Truck Center. This link allows for a timely and cost-effective sharing of managerial and sales information as well as the prompt transfer of inventory among various locations. The transfer of inventory reduces delays in delivery, helps maximize inventory turns and assists in controlling problems created by overstock and understock situations. The Company is linked directly to its major suppliers, including PACCAR, GMC, and John Deere via real-time communication links for purposes of ordering and inventory management. These automated reordering and communication systems allow the Company to maintain proper inventory levels and permit the Company to have inventory delivered to its locations, or directly to customers, typically within 24 hours of an order being placed.

Recent Acquisitions and Dispositions

In April 2003, the Company purchased substantially all of the assets of Peterbilt of Mobile, Inc., which consisted of a Peterbilt dealership in Mobile, Alabama. Peterbilt of Mobile, Inc.’s primary line of business is the sale of new Peterbilt Class 8 trucks, used heavy-duty trucks, parts and service.  The transaction was valued at approximately $1.4 million, with the purchase price paid in cash.

In February 2003, the Company acquired the common stock of Orange County Truck and Trailers, Inc. (“Orange County”), a Peterbilt dealer in central Florida.  The acquisition provided Rush with the exclusive right to sell Peterbilt trucks and parts in Central Florida from locations in Orlando, Haines City, and Tampa, Florida.  The transaction was valued at approximately $5.4 million, with the purchase price paid in cash.

In November 2001, the Company acquired the assets of Perfection Equipment Company, Inc. (“Perfection”). Perfection’s primary lines of business are light-duty and medium-duty truck accessory and up-fitting, oil and gas up-fitting, and parts distribution. The transaction was valued at approximately $4.2 million, with the purchase price paid in cash.

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In August 2001, the Company purchased substantially all of the assets of El Paso Great Basin Trucks, Inc. (“El Paso Trucks”), which consisted of dealerships located in El Paso, Texas and Las Cruces, New Mexico.  El Paso Trucks’ primary line of business is the sale of new Peterbilt and used heavy-duty trucks, parts and service. The transaction was valued at approximately $2.5 million, with the purchase price paid in cash.

In November 2003, the Company sold certain assets of its wholly owned subsidiary, Rush Truck Centers of Louisiana, Inc.  The transaction was valued at approximately $5.5 million and paid in cash.  The Company recognized a gain on sale of assets of approximately $1.6 million in the fourth quarter of 2003.

Competition

There is, and will continue to be, significant competition both within our current markets and in the new markets which we may enter.  We anticipate that competition between us and other dealers will continue to increase in our current markets and on a national level based on the following:

•                                          the accessibility of dealership locations;

•                                          the number of dealership locations;

•                                          price, value, quality and design of the products sold; and

•                                          attention to customer service (including technical service).

Our new heavy-duty truck products compete with Class 8 and Class 7 trucks made by other manufacturers and sold through competing independent and factory-owned truck dealerships, including trucks manufactured by Navistar, Mack, Freightliner, Kenworth, Volvo, Ford Motor Company, Western Star Truck Holdings, Ltd., and other manufacturers.  Kenworth heavy-duty trucks, which are distributed through a different competing dealer network, are also manufactured by PACCAR, Peterbilt’s parent company.  Our construction equipment products compete with construction equipment manufactured by Case, Caterpillar and Komatsu, as well as other manufacturers.  We believe that we are competitive in all of the dealer categories identified above, and that we are able to compete with manufacturer-dealers, independent dealers and wholesalers, rental service companies and industrial auctioneers in distributing our products on the basis of: overall product quality and reputation; “Rush” name recognition and reputation for reliability; and our ability to provide comprehensive full parts and service support, as well as financing, insurance and other customer services.

Dealership Agreements

Peterbilt.  We have entered into non-exclusive dealership agreements with Peterbilt which authorize us to act as a dealer of Peterbilt heavy-duty trucks.  Our areas of responsibility currently encompass 37 locations in the states of California, Colorado, Texas, Oklahoma, Arizona, Florida, Alabama and New Mexico.  These dealership agreements have current terms expiring between August 2004 and October 2006 and impose certain operational obligations and financial requirements upon us and our dealerships.  These agreements are terminable by Peterbilt upon a change of control of the Company, as such term is described in each agreement, and grant Peterbilt certain rights of first refusal relating to

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any sale or transfer by us of our dealership locations or if certain Rush family members desire to sell more than 100,000 shares of our voting common stock within a 12-month period to anyone other than family members or certain other specified persons. Any termination or nonrenewal of these dealership agreements by Peterbilt must follow certain guidelines established by both state and federal legislation designed to protect dealers such as us from arbitrary termination or nonrenewal of franchise agreements. The Automobile Dealers Day in Court Act and other similar state laws provide that the termination or nonrenewal of a dealership agreement must be done in “good faith” and upon a showing of “good cause” by the manufacturer for such termination or nonrenewal, as such terms have been defined by statute and case law.

John Deere.  We have entered into a nonexclusive dealership agreement with John Deere which authorizes us to act as a dealer of John Deere construction, utility and forestry equipment. This John Deere dealership agreement has no specified term or duration.  Our current area of responsibility for the sale of John Deere construction equipment is the greater Houston, Texas metropolitan area.  The John Deere dealership agreement imposes operational obligations and financial requirements of the Company.  Like the dealership agreements with Peterbilt, the dealership agreement with John Deere is terminable upon a change of control of the Company, grants certain rights of first refusal and imposes certain financial requirements.

Other Truck Suppliers.  In addition to our truck dealership agreements with Peterbilt, we are also an authorized dealer of Volvo trucks at our Rush Truck Center in Tulsa, Oklahoma, and have nonexclusive dealership agreements with GMC for the sale of GMC medium-duty trucks at our Rush Truck Centers in San Antonio and El Paso, Texas; Oklahoma City and Tulsa, Oklahoma; San Diego, California; and Phoenix and Tucson, Arizona.  The Company has dealership agreements with UD (Nissan) for the sale of medium-duty trucks at our Rush Truck Centers in Pico Rivera, Fontana and Sylmar, California; Austin, Texas; and Winter Garden, Florida.  In addition, we have a dealership agreement with Hino for the sale of Hino medium-duty trucks at our Rush Truck Center in San Diego, California.  Sales of medium-duty trucks accounted for less than 2.5% of our total revenues for 2003.  These dealership agreements have current terms expiring between March 2005 and June 2006.  These dealership agreements impose operating requirements upon us and require consent from the affected supplier for sale or transfer of either such agreement.

Other Construction Equipment Suppliers.  In addition to John Deere, we are an authorized dealer for suppliers of other construction equipment.  The terms of such arrangements vary, but most of these dealership agreements contain termination provisions allowing the supplier to terminate the agreement after a specified notice period (usually 180 days).

Floor Plan Financing

Heavy-Duty Trucks.  We finance substantially all of our new truck inventory and 75% of the loan value of our used truck inventory under a floor plan arrangement with General Motors Acceptance Corporation (“GMAC”).  As of December 31, 2003, we had approximately $102.2 million outstanding under our GMAC floor plan arrangement.  Our GMAC floor plan facility has no expiration date and generally is renegotiated annually.The current interest rate is the prime rate less 65 basis points.

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Construction Equipment.  We finance substantially all of our new construction equipment inventory under floor plan facilities with John Deere and with Citicapital, a division of Citigroup.  Our John Deere facility has no set expiration date and its interest rate is the prime rate plus 1.5%.  Our Citicapital facility expires June 2004 and the current interest rate is the 30-day LIBOR rate plus 3.0%.  As of December 31, 2003, we had $1.5 million outstanding under the floor plan arrangement with John Deere and $4.5 million outstanding under the floor plan arrangement with Citicapital.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Seasonality

The Company’s heavy-duty truck business is moderately seasonal. Seasonal effects on new truck sales related to the seasonal purchasing patterns of any single customer type are mitigated by the Company’s diverse customer base, including small and large fleets, governments, corporations and owner operators. However, truck parts and service operations historically have experienced higher volumes of sales in the second and third quarters.

Seasonal effects in the construction equipment business are primarily driven by the weather. Seasonal effects on construction equipment sales related to the seasonal purchasing patterns of any single customer type are mitigated by the Company’s diverse customer base that includes contractors for both residential and commercial construction, utility companies, federal, state and local government agencies, and various petrochemical, industrial and material supply type businesses that require construction equipment in their daily operations.

Backlog

On December 31, 2003, the Company’s backlog of truck orders was approximately $150.0 million as compared to a backlog of truck orders of approximately $50.0 million on December 31, 2002. The Company includes in its backlog only confirmed orders. It takes between 60 days and six months for the Company to receive delivery from PACCAR once an order is placed. The Company expects to fill at least 90% of the current backlog of truck orders by the end of 2004. The Company sells approximately 70% of its new heavy-duty trucks by customer special order, with the remainder sold out of inventory. Included in the Company’s backlog as of December 31, 2003 are orders from a number of the Company’s major fleet customers.

Environmental Standards and Other Governmental Regulations

Our operations are subject to numerous federal, state and local laws and regulations, including laws and regulations designed to protect the environment and to regulate the discharge of materials into the environment, which primarily relate to our service operations.

The EPA mandated that heavy-duty engine manufacturers meet new, stricter emissions guidelines, regarding nitrous oxides, for all engines built subsequent to October 1, 2002.  These new guidelines increased the price of a new heavy-duty truck approximately $3,000 to $8,000 per unit and possibly reduced the operating efficiency and life cycle of the truck.  As a result of this EPA mandate, the Company experienced stronger than expected truck sales during the second half of 2002 as customers made purchases of trucks manufactured under the “old” emission laws.

Subsequent to the guidelines that were effective October 1, 2002, the EPA has placed additional guidelines, further restricting the emissions of nitrous oxides for all engines built subsequent to January 1, 2007.  Historically, the industry has experienced an accelerated demand for trucks in the months preceding the effective date of the change in EPA guidelines, followed by a short-term decrease in demand in the month subsequent to the change.  The Company does not expect the change in emission guidelines to have an affect on its 2004 results from operations.  The Company believes it is too early to determine how the change in emission guidelines will affect its results from operations subsequent to 2004.

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Product Warranties

Both Peterbilt and John Deere provide the retail purchasers of their products with a limited warranty against defects in materials and workmanship, excluding certain specified components which are separately warranted by the suppliers of such components.  We do not undertake to provide any warranty to our customers.

We generally sell our used trucks and construction equipment “as is” and without manufacturer’s warranty, although manufacturers sometimes will provide a limited warranty on their used products if they have been properly reconditioned prior to resale or if the manufacturer’s warranty on such product is transferable and has not yet expired.  We do not undertake to provide any warranty to our used truck or construction equipment customers.

Trademarks

The Peterbilt, John Deere, Volvo, GMC, Hino, and UD (Nissan) trademarks and trade names, which are used in connection with our marketing and sales efforts, are subject to a limited license by us from each of the respective manufacturers.  These names are recognized internationally and are important in the marketing of our products. Each licensor engages in a continuous program of trademark and trade name protection in its marketing areas. We hold a registered trademark from the U.S. Patent and Trademark Office for the name “Rush.”

Employees

At December 31, 2003, we employed approximately 1,880 people. We have no contracts or collective bargaining agreements with labor unions and have never experienced work stoppages. We consider our relations with our employees to be good.

Termination of Dealership Agreements Upon a Change of Control

A substantial percentage of our revenues is derived from sales of Peterbilt trucks and John Deere products.  Therefore, our business is highly dependent on the PACCAR and John Deere dealership agreements, which authorize us to sell Peterbilt and John Deere products in our market areas.  Our dealership agreements with PACCAR are terminable by PACCAR in the event the aggregate voting power of Mr. W. Marvin Rush (Mr. Rush) and his family decreases below 30% with respect to the election of directors.  The John Deere dealership agreement would similarly be terminable by John Deere if the aggregate voting power of Mr. Rush and his family were to decrease below 25%.  As of December 31, 2003, Mr. Rush and his family owned 2,759,524 shares of each of the Company’s Class A Common Stock, $.01 par value per share (the “Class A Common Stock”), and the Company’s Class B Common Stock, $.01 par value per share (the “Class B Common Stock”), or approximately 39.3% of the outstanding voting power.  The Company has no control over the transfer or disposition of the shares of the Company’s Common Stock by Mr. Rush or by Mr. Rush’s estate.  If Mr. Rush were to sell his Class B Common Stock or bequest his Class B Common Stock to nonfamily members or if Mr. Rush’s estate were required to liquidate his Class B Common Stock to pay estate taxes or otherwise, the change of control provisions of the dealership agreements described above would be triggered and could cause the Company to lose its critical right to sell Peterbilt and John Deere products.  Any loss of rights under its dealership agreements would have a severely adverse effect on the Company’s results of operations.

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Item 2.  Properties

See Properties section in Item 1.

Item 3.  Legal Proceedings

From time to time, we are involved in litigation arising out of our operations in the ordinary course of business.  We maintain liability insurance, including product liability coverage, in amounts deemed adequate by management. To date, aggregate costs to us for claims, including product liability actions, have not been material. However, an uninsured or partially insured claim, or claim for which indemnification is not available, could have a material adverse effect on our financial condition.  We believe that there are no claims or litigation pending the outcome of which could have a material adverse effect on our financial position or results of operations. However, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our results of operations for the fiscal period in which such resolution occurred.

Item 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the Company’s shareholders during the fourth quarter of the fiscal year ended December 31, 2003.

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PART II

Item 5.  Market for Registrant’s Common Equity, Related Shareholder Matters, and Issue Purchases of Equity Securities

Effective at the close of business on July 9, 2002 (the “Record Date”), pursuant to action taken by the shareholders at the Annual Meeting of the Company held July 9, 2002, and described in the Proxy Statement dated May 15, 2002, the Board of Directors of the Company reclassified the outstanding common stock, $0.01 par value per share (the “Old Common Stock”), as Class B Common Stock, $0.01 par value per share (the “Class B Common Stock”), and declared a stock dividend of one share of a new Class A Common Stock, $.01 par value per share (the “Class A Common Stock”), for each share of Class B Common Stock held by shareholders of record on the Record Date. Each share of Class A Common Stock ranks substantially equal to each share of Class B Common Stock with respect to receipt of any dividends or distributions declared on shares of common stock and the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness and liquidation preference payments to holders of preferred shares.  However, holders of Class A Common Stock will have 1/20^th of one vote per share on all matters requiring a shareholder vote, while holders of Class B Common Stock will retain their one full vote per share.  The Company’s stock trades under the symbols RUSHA and RUSHB.  Prior to the reclassification and stock dividend, the Company had 7,002,044 shares of Old Common Stock outstanding.  Subsequent to the reclassification and stock dividend, the Company had 7,002,044 shares of Class A Common Stock and 7,002,004 shares of Class B Common Stock outstanding.

The Company’s Old Common Stock was listed for quotation on the NASDAQ National Market (“NASDAQ”) under the symbol “RUSH” from June 7, 1996, the date of the Company’s initial public offering, until July 9, 2002, the date of the stock reclassification and dividend described above.  Subsequent to July 9, 2002, the Company’s Common Stock has been listed on NASDAQ under the symbols RUSHA and RUSHB.  The following table sets forth the high and low closing sales prices for the Old Common Stock, the Class A Common Stock and Class B Common Stock for the fiscal periods indicated, as reported by NASDAQ.  The quotations represent prices in the over-the-counter market between dealers in securities, do not include retail markup, markdown or commissions and may not necessarily represent actual transactions.

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As of March 1, 2004, there were approximately 67 record holders of each of the Class A Common Stock and the Class B Common Stock and approximately 790 beneficial holders of the Class A Common Stock and approximately 900 beneficial holders of the Class B Common Stock.

The Board of Directors intends to retain any earnings of the Company to support operations and to finance expansion and does not intend to pay cash dividends on the Common Stock in the foreseeable future.  Any future determination as to the payment of dividends will be at the discretion of the Board of Directors of the Company and will depend on the Company’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.

The Company has not sold any securities in the last three years that were not registered under the Exchange Act.

No shares of the Company’s Class A Common Stock or Class B Common Stock were purchased by or on behalf of the Company or any affiliated purchaser in the fourth quarter of 2003.

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Item 6.  Selected Consolidated Financial and Operating Data

The information below was derived from the audited consolidated financial statements included in this report and reports we have previously filed with the SEC. This information should be read together with those consolidated financial statements and the notes to the consolidated financial statements. These historical results are not necessarily indicative of the results to be expected in the future.  The Selected Consolidated Financial and Operating Data presented below may not be comparable between periods in all material respects or indicative of the Company’s future financial position or results of operations due primarily to acquisitions and discontinued operations which occurred during the periods presented.  See Note 17 to the Company’s Consolidated Financial Statements for a discussion of such acquisitions and Note 3 to the Company’s Consolidated Financial Statements for a discussion of such discontinued operations. The Selected Consolidated Financial and Operating Data should be read in conjunction with the Company’s Historical Consolidated Financial Statements and related notes and other financial information included elsewhere herein. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this Form 10-K, including, but not limited to, statements made in this Item 1, “Business,” and those made in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended.  Specifically, all statements other than statements of historical fact included in this Form 10-K regarding the Company’s financial position, business strategy and plans and objectives of management of the Company for future operations are forward-looking statements.  These forward-looking statements are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management.  When used in this report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements.  Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, competitive factors, general economic conditions, cyclicality, economic conditions in the new and used truck and equipment markets, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors described herein and in the Company’s Registration Statement on Form S-1 (File No. 333-03346) and in the Company’s annual, quarterly and other reports filed with the Securities and Exchange Commission (collectively, “cautionary statements”).  Although the Company believes that its expectations are reasonable, it can give no assurance that such expectations will prove to be correct.  Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, or intended.  All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements.  The Company does not intend to update these forward-looking statements.

General

We are a full-service, integrated retailer of premium transportation and construction equipment and related services.  As the leading supplier of Peterbilt trucks, we accounted for approximately 20.3% of all new Peterbilt trucks sold in the U.S. in 2003.  In 1997, we acquired our first John Deere construction equipment dealership in Houston, Texas and are the major supplier of John Deere construction equipment in that market.  Through our strategically located network of Rush Truck Centers and our Rush Equipment Center, we provide one-stop service for the needs of our customers, including retail sales of new and used transportation and construction equipment, as well as aftermarket parts sales, service and repair facilities and financing, leasing and rental, and insurance services.

Our Rush Truck Centers are principally located in high traffic areas throughout the southern United States. We provide leasing and rental services through our Rush Leasing and Rental Division at our one-stop Rush Truck Centers and our Rush Equipment Center.  Retail financing of trucks and

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construction equipment, as well as a line of insurance products, are arranged through our Rush Financial and Insurance Division.

Our business strategy, based upon providing the customer with competitively priced products supported with timely and reliable service, has enabled us to increase revenues at a compounded annual growth rate of 2.4% since 1999, despite a compounded annual decrease of approximately 13% in industry-wide United States heavy-duty truck sales over the same period.  We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers and Rush Equipment Center as we extend our geographic focus through strategic acquisitions of new locations and expansions of our existing facilities.

All of our business operations are currently conducted through four separate divisions: the Rush Truck Center Division, the Rush Equipment Center Division, the Rush Leasing and Rental Division and the Rush Financial and Insurance Division.

Rush Truck Center Division.  Since commencing operations as a Peterbilt heavy-duty truck dealer over 38 years ago, we have grown to operate Rush Truck Centers at 37 locations, which primarily sell Peterbilt Class 8 heavy-duty trucks in the states of Texas, Colorado, Oklahoma, California, Arizona, Florida, Alabama and New Mexico. Our Rush Truck Centers are strategically located to take advantage of increased cross-border traffic between the United States and Mexico resulting from implementation of NAFTA in 1994.  During 2003, our Rush Truck Center Division accounted for approximately $734.8 million, or 90.1%, of our total revenues.

Rush Equipment Center Division.  Since commencing operations as a John Deere dealer in 1997, we had grown to operate six Rush Equipment Centers located in Texas and Michigan.  We sold our five Michigan construction equipment stores during 2002, recording a net loss from discontinued operations of $3.3 million (see Note 3 of Item 8).  At our Rush Equipment Center in Houston, Texas, we will continue to provide a full line of construction equipment for light to medium sized applications, including John Deere backhoe loaders, hydraulic excavators, crawler-dozers and four-wheel drive loaders.  During 2003, our Texas store accounted for approximately $40.6 million, or 5.0%, of our total revenues.

Rush Leasing and Rental Division.  We provide a broad line of product selections for lease or rent, including Class 8, Class 7 and Class 6 Peterbilt trucks, and a full array of John Deere construction equipment products, including a variety of construction equipment trailers and heavy-duty cranes.  Our lease and rental fleets are offered primarily through our Rush Truck Centers and Rush Equipment Center on a daily, monthly or long-term basis.  During 2003, our Rush Leasing and Rental Division accounted for approximately $33.7 million, or 4.1%, of our total revenues.

Rush Financial and Insurance Division.  We offer third-party financing to assist customers in purchasing new and used trucks and construction equipment.  Additionally, we sell a complete line of property and casualty insurance, including collision and liability insurance on trucks, cargo insurance, general liability, workers compensation, credit life and health, and occupational accident insurance coverages.  During 2003, our Rush Financial and Insurance Division accounted for approximately $6.3 million, or 0.8%, of our total revenues.

Effective at the close of business on July 9, 2002, the Board of Directors of the Company reclassified the outstanding Old Common Stock as Class B Common Stock and declared a stock dividend of one

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share of a new Class A Common Stock for each share of Class B Common Stock held by shareholders of record on the Record Date. Each share of Class A Common Stock ranks equal to each share of Class B Common Stock with respect to receipt of any dividends or distributions declared on shares of common stock and the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness and liquidation preference payments to holders of preferred shares.  However, holders of Class A Common Stock will have 1/20^th of one vote per share on all matters requiring a shareholder vote, while holders of Class B Common Stock will retain their one full vote per share.  The Company’s stock trades on NASDAQ under the symbols RUSHA and RUSHB.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.  The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  There can be no assurance that actual results will not differ from those estimates.  The Company believes the following accounting policies, which are described in Note 2 of Notes to Consolidated Financial Statements, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Inventories

Inventories are stated at the lower of cost or market value.  Cost is determined by specific identification for new and used truck and construction equipment inventory and by the first-in, first-out method for tires, parts and accessories.  An allowance is provided when it is anticipated that cost will exceed net realizable value.

Other Assets

Other assets consist primarily of goodwill related to acquisitions and other intangible assets.  As stated in Note 2, Financial Accounting Standards Board Statement No. 142 (“SFAS 142”) provides that goodwill and other intangible assets that have indefinite useful lives will not be amortized, but instead must be tested at least annually for impairment, and intangible assets that have finite useful lives should continue to be amortized over their useful lives.  SFAS 142 also provides specific guidance for testing goodwill and other nonamortized intangible assets for impairment.  SFAS 142 requires management to make certain estimates and assumptions in order to allocate goodwill to reporting units and to determine the fair value of a reporting unit’s net assets and liabilities, including, among other things, an assessment of market condition, projected cash flows, interest rates and growth rates, which could significantly impact the reported value of goodwill and other intangible assets.  SFAS 142 requires, in lieu of amortization, an annual impairment review of goodwill.  The impact of adopting SFAS 142, effective January 1, 2002, resulted in the cessation of goodwill amortization, which would have approximated $1.2 million of pretax amortization expense from continuing operations during 2002 and $1.4 million of pretax amortization expense from continuing operations during 2003.  The Company did not record an impairment charge related to the goodwill for its continuing operations as a result of its December 31, 2003 impairment review.  The Company did, however, record an impairment of goodwill related to its discontinued operations at December 31, 2002 (see Note 3).  Furthermore, SFAS 142 exposes the Company to the possibility that changes in market conditions

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could result in significant impairment charges in the future, thus resulting in a potential increase in earnings volatility.

Revenue Recognition Policies

Income on the sale of a vehicle or a piece of construction equipment (a “unit”) is recognized when the customer executes a purchase contract with us, a unit has been delivered to the customer and there are no significant uncertainties related to financing or collectibility.  Lease and rental income is recognized over the period of the related lease or rental agreement.  Parts and service revenue is earned at the time the Company sells the parts to its customers or at the time the Company completes the service work order related to service provided to the customer’s unit.  Payments received on prepaid maintenance plans are deferred as a component of accrued expenses and recognized as income when the maintenance is performed.

Finance and Insurance Revenue Recognition

Finance income related to the sale of a unit is recognized over the period of the respective finance contract, based on the effective interest rate method, if the finance contract is retained by the Company.  During 2001, 2002 and 2003, no finance contracts were retained for any significant length of time by the Company but were generally sold to certain finance companies concurrent with the sale of the related unit.  The majority of finance contracts are sold without recourse.  The Company’s liability related to finance contracts sold with recourse is generally limited to 5% to 20% of the outstanding amount of each note initiated on behalf of the finance company.  The Company arranges financing for customers through various financial institutions and receives a commission from the lender equal to the difference between the interest rates charged to customers over the predetermined interest rates set by the financing institution.  The Company also receives commissions from the sale of various insurance products to customers and extended service contracts.  Revenue is recognized by the Company upon the sale of such finance and insurance contracts to the finance and insurance companies, net of a provision for estimated repossession losses and interest charge backs.  The Company is not the obligor under any of these contracts.  In the case of finance contracts, a customer may prepay, or fail to pay, thereby terminating the contract.  If the customer terminates a retail finance contract or other insurance product prior to scheduled maturity, a portion of these fees may be charged back to the Company based on the relevant terms of the contracts.  Such estimate of ultimate charge back exposure is based on the Company’s historical charge back expense arising from similar contracts, including the impact of refinance and default rates on retail finance contracts.  The actual amount of historical charge backs has not been significantly different than the Company’s estimates.

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Results of Operations

The following discussion and analysis includes the Company’s historical results of operations for 2001, 2002 and 2003.

The following table sets forth for the years indicated certain financial data as a percentage of total revenues:

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Fiscal Year Ended December 31, 2003 Compared With Fiscal Year Ended December 31, 2002

Revenues

Revenues increased $58.2 million, or 7.7%, from $757.1 million in 2002 to $815.3 million in 2003.  Sales of new and used trucks increased $13.3 million, or 2.7%, from $488.5 million in 2002 to $501.8 million in 2003.

Unit sales of new Class 8 trucks decreased 9.6%, from 4,022 units in 2002 to 3,636 units in 2003.  The decline in new Class 8 truck sales was primarily due to the pre-buy experienced during the last half of 2002 caused by emission law changes that became effective October 1, 2002 and the buying cycle of one of the Company’s major fleet customers, who made a significantly larger purchase in 2002 than in 2003.  The Company’s average sales price per Class 8 truck increased by 7.5% in 2003 compared to 2002.  This increase is directly related to the increased engine costs that resulted from the new emission laws.  Based on consensus estimates from truck and original equipment manufacturers, the Company believes that the deliveries of Class 8 trucks will increase in 2004 to approximately 186,000. In 2003, the Company retained a 2.5% share of the Class 8 truck sales market in the U.S.  The Company expects to maintain this share in 2004, which would result in the sale of approximately 4,600 Class 8 trucks.

Unit sales of new medium-duty trucks increased 29.4%, from 695 units in 2002 to 899 units in 2003.  In 2003, the Company made a concerted effort to improve its medium-duty truck sales by adding experienced medium-duty sales personnel, and introducing new medium-duty franchises to complement our existing Peterbilt medium-duty line.  As a result of these actions, 44% of the Company’s medium-duty unit sales in 2003 were GMC, Hino and UD models, compared to only 21% in 2002. The average sales price for these models was $38,700 compared to $66,500 for the Peterbilt medium-duty model, resulting in a decrease of the average sales price for all medium-duty trucks by 8.3% in 2003 compared to 2002.  Overall, new medium-duty truck sales revenue increased $7.6 million in 2003 compared to 2002.  In 2004, the Company expects to continue to add medium-duty franchises to certain of its dealerships and to increase its medium-duty sales and market share compared to 2003.

Unit sales of used trucks increased 14.7%, from 2,111 units in 2002 to 2,421 units in 2003.  Used truck average revenue per unit increased by 3.8%.  During 2003, the increased demand for used trucks was partially due to the new emission laws that became effective October 1, 2002.  The Company believes some customers were skeptical of the new engines and opted to purchase used trucks.  The increase in the average used truck price is also a sign that the industry has been able to work through the excess supply of used trucks in the market caused by the high volume of new truck unit sales during 1998 through 2000.

Parts and service sales increased $38.3 million, or 18.1%, from $211.5 million in 2002 to $249.8 million in 2003.  Same store parts and service sales increased $19.7 million, or 9.3%, in 2003 compared to 2002.  This increase was in line with management’s expectations that consider business development coupled with price increases for parts and labor.  The remaining increase was attributable to new store additions.  The Company expects same store sales to increase approximately 10.0% in 2004 compared to 2003.

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Sales of new and used construction equipment increased $4.0 million, or 16.5%, from $24.3 million in 2002 to $28.3 million in 2003.  This increase is consistent with the overall increase in unit sales for the Houston, Texas construction equipment market during 2003.  The Company’s market share in the Houston area was 17.5% in 2003 compared to 14.6% in 2002.  According to data compiled by John Deere, approximately 1,656 units of construction equipment were put into use in our area of responsibility in 2003 compared to 1,387 in 2002.  The construction equipment industry expects to sell approximately 1,700 to 1,800 new construction equipment units in the Houston area during 2004.  The Company expects to increase its market share slightly in 2004 compared to 2003.

Lease and rental revenues increased by 2.0%, from $25.3 million in 2002 to $25.8 million in 2003.  As part of a planned reduction in our construction equipment rental business, construction equipment lease and rental revenues decreased $0.6 million, or 50.0%, from 2002 to 2003.  Truck lease and rental revenue increased $1.2 million, or 5.0%, from 2002 to 2003.  The increase in truck lease and rental revenue is due to the increase in our customer base during 2003.  The Company expects lease and rental revenue to remain relatively flat in 2004 compared to 2003.

Finance and insurance revenues increased 16.7%, from $5.4 million in 2002 to $6.3 million in 2003. Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of operating profits.  Approximately 88.9% of this increase is related to the addition of the new stores in Florida and Alabama.  The remaining increase is related to additional customers qualifying for financing due to a change in the credit practices of the Company’s finance providers.

Other income increased $1.2 million, or 54.5%, from $2.2 million in 2002 to $3.4 million in 2003.  Other income revenue is primarily related to the gain on sale realized on trucks from the lease and rental fleet, commissions earned from John Deere for direct manufacturer sales into our area of responsibility, document fees related to truck sales and purchase discounts.  The primary reason for the increase during 2003 is related to gains resulting from truck sales by the leasing and rental division.

Gross Profit

Gross profit increased $12.0 million, or 8.5%, from $141.2 million in 2002 to $153.3 million in 2003. Approximately $10.6 million of the increase in gross profit is related to the acquisition of the Florida and Alabama locations.  Gross profit as a percentage of sales remained relatively flat at 18.7% in 2002 and 18.8% in 2003.

Gross margins on Class 8 truck sales, exclusive of manufacturer incentives, were down from 4.9% in 2002 to 4.3% in 2003.  The decrease is a result of the Company accepting smaller margins on several first time purchases by fleet customers.  Given the increasing demand for Class 8 trucks coupled with the expected increase in purchases from owner operators that historically have rendered higher gross margins than fleet sales, the Company expects gross margins from Class 8 truck sales in 2004 to exceed those achieved in 2003.  Additionally, each year the Company evaluates its reserve for new truck valuation losses.  The Company recorded a $0.3 million loss provision to increase the Company’s reserve for new truck inventory valuation in 2003 compared to $0 in 2002.

Gross margins, exclusive of manufacturer incentives, on medium-duty truck sales decreased from 5.6% in 2002 to 4.9% in 2003, primarily due to the previously discussed change in product mix.  Gross margins on GMC, Hino and UD models were approximately 3.4% in 2003 compared to a gross margin of 5.4% of the Peterbilt medium-duty model.  Although sales of GMC, Hino and UD models will grow

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significantly as a percentage of total medium-duty sales in 2004, the Company expects the 2004 gross margin to approximate the 4.9% achieved during 2003.

Gross margins on used truck sales decreased from 8.6% in 2002 to 6.4% in 2003, primarily due to the mix of wholesale versus retail used truck sales.  The Company experienced higher than normal used truck wholesale transactions related to the trade-in units from first time new truck fleet customers.  The Company does not expect to purchase as many used trucks from first time new truck fleet customers in 2004, which should result in increased gross margins on used truck sales compared to 2003.  Additionally, each year the Company evaluates its reserve for used truck valuation losses.  The Company recorded a $1.0 million loss provision, primarily related to trade-in units from first time new truck fleet customers, to increase the Company’s reserve for used truck valuation losses in 2003 compared to a $0.5 million loss provision recognized during 2002.

Gross margins from the Company’s parts, service and body shop operations decreased from 39.5% in 2002 to 37.7% in 2003.  There are various reasons for this decrease, including nonproprietary parts sales becoming a larger percentage of the Company’s overall parts sales and competitive pricing pressures from providers of nonproprietary parts. Historically, gross margins on nonproprietary parts are approximately 40 to 50% lower than gross margins on proprietary parts.  Additionally, the Company has increased preventative maintenance services that are provided at lower margins than traditional repair work, and has selectively provided discounted labor rates to garner additional sales both at our dealership locations and at off-site locations.  Gross profit dollars for the parts, service and body shop departments increased from $81.9 million in 2002 to $92.5 million in 2003.  The Company expects the increase in same store gross profit to approximate the expected increase in parts, service and body shop sales of 10.0% in 2004 compared to 2003.

Gross margins on new and used construction equipment sales remained relatively flat at approximately 10.0% in 2002 and 2003.  The Company expects 2004 gross margins to be consistent with those achieved in 2003 and overall gross profit growth to be directly correlated to sales growth.

Gross profit generated from lease and rental sales remained relatively flat.  The Company’s policy is to aggressively depreciate its lease and rental fleet. This policy results in the Company realizing small gross margins while the unit is in service and a corresponding larger gain on sale when the unit is sold at the end of the lease term.  The Company expects 2004 gross margins to be consistent with those achieved in 2003 and overall gross profit growth to be directly correlated to increases in lease and rental sales.

The increase in finance and insurance revenues and other income, as described above, has limited direct costs and, therefore, contributes a disproportionate share of gross profit.  The Company expects gross profit from finance and insurance sales and other income to increase in 2004 based on projected increases in truck sales.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses increased $12.5 million, or 11.2%, from $111.7 million in 2002 to $124.2 million in 2003. Approximately $7.6 million of SG&A expense is related to the acquisitions of the Florida and Alabama locations.  Same store SG&A expense increased $4.9 million, or 4.4%, from 2002 to 2003.  The remaining increase is partially due to increased salary expense and increased commissions corresponding to the increase in gross profit.  SG&A expenses as a percentage of sales increased from 14.8% to 15.2% from 2002 to 2003.  The Company’s

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management continually monitors SG&A expenses.  The Company expects SG&A expenses as a percentage of sales to decrease in 2004 compared to 2003.

Interest Expense, Net

Net interest expense decreased $0.2 million, or 3.1%, from $6.5 million in 2002 to $6.3 million in 2003.  Interest expense decreased primarily as the result of declining interest rates.  During 2004, the Company foresees increased truck inventory which will be financed through our floor plan arrangements.  This increase in floor plan financing is expected to increase interest expense during 2004.

Gain on Sale of Assets

Gain on sale of assets increased $1.8 million, from $0.2 million in 2002 to $2.0 million in 2003.  The gain in 2002 is primarily related to the replacement of fixed assets used in the operation of the business.  The gain recognized in 2003 is primarily related to the sale of the assets of Rush Truck Centers of Louisiana, Inc.  The Company expects gains on sale of assets in 2004 to be limited to replacement of fixed assets used in the operation of the business and sales of certain real estate properties.

Income from Continuing Operations Before Income Taxes

Income from continuing operations before income taxes increased by $1.2 million, or 8.3%, from $14.5 million in 2002 to $15.7 million in 2003, as a result of the factors described above.  Industry experts predict an increase in Class 8 truck sales for 2004.  Based on the predicted increase in industry truck sales, the Company believes that income from continuing operations in 2004 will exceed that of 2003.

Income Taxes from Continuing Operations

Income taxes from continuing operations increased $0.5 million, or 8.6%, from $5.8 million in 2002 to $6.3 million in 2003.  The Company has provided for taxes at a 40% effective rate.

(Loss) from Discontinued Operations, net of Income Taxes

Loss from discontinued operations net of income taxes decreased from $10.5 million in 2002 to $0.6 million in 2003.  The loss recorded during 2002 includes net operating losses of the Michigan construction equipment stores of $0.9 million and net operating losses of D&D of $1.3 million, as well as disposal costs of $2.5 million for the Michigan construction equipment stores and $5.8 million for D&D.  The loss recorded during 2003 includes net operating results of D&D of approximately $0.6 million.  The Company expects to sell all discontinued operations by December 31, 2004.

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Fiscal Year Ended December 31, 2002 Compared With Fiscal Year Ended December 31, 2001

Revenues

Revenues increased $65.6 million, or 9.5%, from $691.5 million in 2001 to $757.1 million in 2002.  Sales of new and used trucks increased $50.4 million, or 11.5%, from $438.1 million in 2001 to $488.5 million in 2002.

Unit sales of new Class 8 trucks increased 11.8%, from 3,597 units in 2001 to 4,022 units in 2002.  New heavy-duty truck average sales price per Class 8 truck increased by 0.4% from 2001 to 2002.  As a result of the emission law requirements for heavy-duty trucks, the Company experienced stronger than usual new truck sales during the second half of 2002 as customers made purchases of trucks manufactured before new emission laws took effect.  These new guidelines increased the price of a new heavy-duty truck approximately $3,000 to $8,000 per unit.

Unit sales of new medium-duty trucks increased 7.3%, from 648 units in 2001 to 695 units in 2002.  New medium-duty truck average sales price remained relatively flat from 2001 to 2002.  The Company plans to penetrate the medium-duty truck market by adding new franchises, complementing our existing Peterbilt medium-duty line.

Used truck average revenue per unit increased by 0.6%.  Unit sales of used trucks increased 10.7%, from 1,907 units in 2001 to 2,111 units in 2002.  The slight increase in the average used truck prices indicated that the market was absorbing the excess used trucks in the market caused by high new truck sales during 1998 through 2000.

Parts and service sales increased $22.9 million, or 12.1%, from $188.6 million in 2001 to $211.5 million in 2002. The increase was due to same store growth of $6.5 million, or 3.4%, with the remaining increase attributable to new store additions.  This increase is consistent with management’s expectations and price increases for parts and labor.

Sales of new and used construction equipment decreased $7.4 million, or 23.3%, from $31.7 million in 2001 to $24.3 million in 2002. This decrease is consistent with total construction equipment industry sales declines of 20.7% in our Houston, Texas market.

Lease and rental revenues increased by 1.2%, from $25.0 million in 2001 to $25.3 million in 2002. As part of a planned reduction in our construction equipment rental business, construction equipment lease and rental revenues decreased $0.3 million, or 17.4%, from 2001 to 2002.  Truck lease and rental revenue increased $0.6 million, or 2.1%, from 2001 to 2002.

Finance and insurance revenues increased 3.8%, from $5.2 million in 2001 to $5.4 million in 2002. Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of operating profits.

Other income decreased $0.7 million, or 24.1%, from $2.9 million in 2001 to $2.2 million in 2002, due primarily to a decrease in gains resulting from truck sales by the leasing operations and fewer direct sales by John Deere into our Houston market.

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Gross Profit

Gross profit increased $12.0 million, or 9.3%, from $129.2 million in 2001 to $141.2 million in 2002.  $5.4 million of the increase in gross profit is related to the acquisition of El Paso Trucks and Perfection with the remaining attributable to same store growth.  Gross profit as a percentage of sales remained flat at 18.7% in 2001 and 2002.

Gross margins on Class 8 truck sales, exclusive of manufacturer incentives, remained flat at 4.9% in 2001 and 2002.  Gross margins, exclusive of manufacturer incentives, on medium-duty trucks increased from 5.2% in 2001 to 5.6% in 2002.  Gross margins on used truck sales increased from 8.0% in 2001 to 8.6% in 2002. Each year the Company records a loss provision, which increases the Company’s reserve for new and used truck valuation and repossession losses.  As a result of the more stable used truck market in 2002 as compared to 2001, only a $0.5 million loss provision was recorded in 2002 compared to a $1.2 million loss provision recorded in 2001.

Gross margins on new and used construction equipment sales declined from 11.5% in 2001 to 10.0% in 2002.  The decrease in margin is primarily related to a large amount of used construction equipment that was sold at an auction, at very low margins, in 2002.

Gross margins on parts, service and body shop operations decreased from 41.3% in 2001 to 39.5% in 2002.  This decrease is due to a change in the product mix.  Parts sales increased as a percentage of overall sales in 2002 versus 2001. Parts sales historically have a lower gross margin than service and body shop sales.  Overall, the Company’s parts, service and body shop operations gross profit dollars increased from $76.6 million in 2001 to $81.9 million in 2002.

The increase in finance and insurance revenues and the decrease in other income, as described above, have limited direct costs and, therefore, contribute a disproportionate share of gross profit.

Selling, General and Administrative

Selling, general and administrative expenses increased $9.9 million, or 9.7%, from $101.8 million in 2001 to $111.7 million in 2002. Approximately $5.3 million of selling, general and administrative expense is related to the acquisitions of El Paso Trucks and Perfection.  Same store selling, general and administrative expense increased $4.6 million, or 4.5%, from 2001 to 2002.  Selling, general and administrative expenses as a percentage of sales increased from 14.7% in 2001 to 14.8% in 2002.

Interest Expense, Net

Net interest expense decreased $2.8 million, or 30.1%, from $9.3 million in 2001 to $6.5 million in 2002.  Interest expense decreased primarily as the result of decreased levels of indebtedness due to lower floor plan liability levels.

Gain on Sale of Assets

Gain on sale of assets decreased $0.9 million, or 81.8%, from 2001 to 2002. The gain recognized in 2001 is primarily related to the sale of excess real estate not needed for the operation of the business.  The gain in 2002 is primarily related to the replacement of fixed assets used in the operation of the business.

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Income from Continuing Operations Before Income Taxes

Income from continuing operations before income taxes increased by $4.5 million, or 45%, from $10.0 million in 2001 to $14.5 million, in 2002, as a result of the factors described above.

Income Taxes from Continuing Operations

Income taxes from continuing operations increased $1.8 million, or 45%, from 2001 to 2002.  The Company has provided for taxes at a 40% effective rate.

(Loss) from Discontinued Operations, net of Income Taxes

Loss from discontinued operations net of income taxes increased from $2.7 million in 2001 to $10.5 million in 2002.  The loss recorded during 2001 is equal to net losses incurred in operating the Michigan construction equipment stores of $0.3 million and net losses incurred in operating D&D of $2.4 million.  The loss recorded during 2002 includes net operating results of the Michigan construction equipment stores of $0.9 million and net operating results of D&D of $1.3 million as well as disposal costs related to the Michigan construction equipment stores of $2.5 million and disposal costs related to D&D of $5.8 million.

Liquidity and Capital Resources

The Company’s short-term cash needs are primarily for working capital, including inventory requirements, expansion of existing facilities and acquisitions of new facilities. These short-term cash needs have historically been financed with retention of profits and borrowings under credit facilities available to the Company.

On December 31, 2003, the Company had working capital of approximately $14.1 million, including $34.4 million in cash, $24.5 million in accounts receivable, $137.4 million in inventories, $8.8 million in assets held for sale, $1.1 million in prepaid expenses and other, and $2.9 million in deferred income taxes, offset by $108.2 million outstanding under floor plan notes payable, $23.8 million in current maturities of long-term debt, $17.7 million in advances outstanding under lines of credit, $16.1 million of trade accounts payable and $29.1 million in accrued expenses. The aggregate maximum borrowing limits under working capital lines of credit with its primary truck lender are approximately $13.5 million. Advances outstanding under this line of credit at December 31, 2003 were $13.5 million, leaving no funds available for future borrowings.  The Company has four separate secured lines of credit that provide for an aggregate maximum borrowing of $13.6 million.  Advances outstanding under these secured lines of credit in aggregate were $4.2 million, leaving $9.4 million available for future borrowings as of December 31, 2003.

The Company has no material commitment for capital expenditures as of December 31, 2003.  However, the Company will continue to purchase vehicles that are necessary to operate its leasing and rental division.  Furthermore, management will continue to authorize capital expenditures for new buildings and expansion of facilities based on market opportunities.  Additional capital expenditures are expected for the routine maintenance of fixed assets.

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The Company’s floor plan agreement with its primary truck lender limits the Company’s borrowing capacity based on the number of new and used trucks that may be financed.  As of December 31, 2003, the aggregate amount of unit capacity for new trucks was 1,390 and the aggregate amount of unit capacity for used trucks was 553; the availability for new trucks was 130 and the availability for used trucks was 238.  The Company’s floor plan agreement with one of its construction equipment lenders is based on the book value of the Company’s construction equipment inventory.  As of December 31, 2003, the aggregate amount of borrowing capacity with this lender was $10.5 million, with approximately $4.5 million outstanding.  Additional amounts are available under the Company’s John Deere dealership agreement.  On December 31, 2003, approximately $1.5 million was outstanding pursuant to the John Deere dealership agreement.

During 2003, operating activities resulted in net cash provided by operations of $16.3 million.  Cash provided by operations was primarily due to income from continuing operations of $9.5 million coupled with provisions for depreciation and amortization of $15.5 million, an increase in provision for deferred income tax of $3.7 million and an increase of accounts payable and accrued expenses of $1.2 million, which was partially offset by increases in inventories of $13.2 million.  The increase in inventories resulted from the additions of the new stores in Florida and Alabama.

During 2003, the Company used $16.8 million in investing activities.  This consisted of purchases of property and equipment of $18.8 million and business acquisitions of $5.5 million which were offset by proceeds from the sale of property and equipment of $7.5 million.  Property and equipment purchases are partially related to the purchase of 77 additional trucks for $8.9 million for the leasing division during 2003.  Additionally, the Company acquired building, land and leasehold improvements of $4.2 million.  Approximately $5.7 million of property and equipment expenditures was for routine maintenance of assets.

Net cash provided by financing activities in 2003 amounted to $10.1 million. Net cash provided by financing activities was primarily due to proceeds from notes payable of $19.2 million and net draws of floor plan notes payable of $19.6 million, offset by principal payments on notes payable of $24.1 million and net payments on lines of credit of $4.7 million.  The proceeds from notes payable are primarily related to the increase in the lease and rental fleet in the leasing division and real estate financing.

During 2002, operating activities resulted in net cash provided by operations of $16.0 million.  Cash provided by operations was primarily due to income from continuing operations of $8.7 million, net of charges related to discontinued operations of $12.0 million, an increase in accrued expenses of $3.1 million, coupled with provisions for depreciation and amortization of $15.8 million, offset by increases in inventories of $12.7 million and a loss from discontinued operations of $10.5 million.

During 2002, the Company used $11.7 million in investing activities which primarily consisted of purchases of property and equipment of $16.5 million, offset by proceeds from the sale of property and equipment of $3.9 million.

Net cash provided by financing activities in 2002 amounted to $0.6 million. Net cash provided by financing activities was primarily due to proceeds from notes payable of $21.8 million and net draws of floor plan notes payable of $4.0 million offset by principal payments on notes payable of $25.0 million.

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During 2003, the Company arranged customer financing for approximately 29.4% of its total new and used truck sales, and derived approximately 79% of its finance revenues from the sale of new trucks and the remaining 21% from the sale of used trucks.  The Company’s new and used truck financing is typically provided through Citicapital and PACCAR Financial. The Company financed approximately $147.4 million of new and used truck purchases in 2003. The Company’s contracts with Citicapital and PACCAR Financial provide for payment to the Company of all finance charges in excess of a negotiated discount rate within 30 days of the date of financing, with such payments subject to offsets resulting from the early payoff or defaults under installment contracts previously initiated on behalf of and sold to Citicapital and PACCAR Financial by the Company.  A majority of finance contracts are sold without recourse to the Company.  The Company’s recourse liability, related to finance contracts sold with recourse to the Company, is limited to 15 to 25% of the outstanding amount of each note initiated on behalf of the finance company.  The Company records a provision for estimated repossession losses and early repayment penalties.

In addition, through The CIT Group, Citicapital, John Deere Credit and others, the Company arranged customer financing for approximately $17.7 million, or 60.0%, of our total new and used construction equipment sales in 2003.  Generally, construction equipment financings are memorialized through the use of installment or lease contracts, which are secured by the construction equipment financed, and generally require a down payment up to 10% of the value of the financed piece of construction equipment, with the remaining balance being financed over a three to five year period.  The Company experiences no repossession loss on construction equipment financings because such financings are sold to third parties without recourse.

Substantially all of the Company’s truck purchases from PACCAR are made on terms requiring payment within 15 days or less from the date the trucks are shipped from the factory. The Company finances substantially all of the purchase price of its new truck inventory, and 75% of the loan value of its used truck inventory, under a floor plan arrangement with GMAC under which GMAC pays PACCAR directly with respect to new trucks. The Company makes monthly interest payments to GMAC on the amount financed, but is not required to commence loan principal repayments prior to the sale of new vehicles for a period of 12 months and for used vehicles for a period of three months. On December 31, 2003, the Company had approximately $102.2 million outstanding under its floor plan financing arrangement with GMAC. GMAC permits the Company to earn interest at the prime rate less 0.90% on overnight funds deposited by the Company with GMAC, up to 10.0% of the amount borrowed under its floor plan financing arrangement with GMAC.

Substantially all of the Company’s new construction equipment purchases are financed by John Deere and Citicapital.  The Company finances substantially all of the purchase price of its new equipment inventory under its floor plan facilities.  The agreement with John Deere provides an interest free financing period after which time the amount financed is required to be paid in full.  When construction equipment is sold prior to the expiration of the interest free period, the Company is required to repay the principal within approximately ten days of the sale.  If the equipment financed by John Deere is not sold within the interest free period, it is transferred to the Citicapital floor plan arrangement. The Company makes principal payments for sold inventory to Citicapital on the 15^th day of each month.  Used and rental equipment is financed to a maximum book value under a floor plan arrangement with Citicapital.  The Company makes monthly interest payments on the amount financed and is required to commence loan principal repayments on rental equipment as book value reduces.  Principal payments for sold used equipment are made on the 15^thday of each month following the sale.  The loans are collateralized by a lien on the equipment.  The Company’s

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floor plan agreements limit the aggregate amount of borrowings based on the book value of new and used equipment units.  As of December 31, 2003, the Company’s floor plan arrangement with Citicapital permits the financing of up to $10.5 million in construction equipment.  On December 31, 2003, the Company had $1.5 million outstanding under its floor plan financing arrangements with John Deere and $4.5 million outstanding under its floor plan financing arrangement with Citicapital.

Seasonality

The Company’s heavy-duty truck business is moderately seasonal.  Seasonal effects on new truck sales related to the seasonal purchasing patterns of any single customer type are mitigated by the Company’s diverse customer base, which includes small and large fleets, governments, corporations and owner operators.  However, truck parts and service operations historically have experienced higher volumes of sales in the second and third quarters.

Seasonal effects on the construction equipment business are primarily driven by the weather. Seasonal effects on construction equipment sales related to the seasonal purchasing patterns of any single customer type are mitigated by the Company’s diverse customer base that includes contractors for both residential and commercial construction, utility companies, federal, state and local government agencies, and various petrochemical, industrial and material supply type businesses that require construction equipment in their daily operations.

Cyclicality

The Company’s business, as well as the entire retail heavy-duty truck industry, is dependent on a number of factors relating to general economic conditions, including fuel prices, interest rate fluctuations, economic recessions, government regulation and customer business cycles. In addition, unit sales of new trucks have historically been subject to substantial cyclical variation based on such general economic conditions. According to R.L. Polk, industry-wide domestic retail sales of Class 8 trucks resulted in approximately 145,000 new Class 8 truck registrations in 2003.  The industry forecasts heavy-duty new truck sales to increase to approximately 186,000 units during 2004.  The Company believes that its geographic expansion, concentration on high margin parts and service operations, and diversity of its customer base will reduce the overall impact to the Company resulting from general economic conditions and cyclical trends affecting the heavy-duty truck industry.  However, the Company’s operations will be affected by any general economic conditions or cyclical trends, either positive or negative, affecting the heavy-duty truck industry.

Effects of Inflation

The Company believes that the relatively moderate rates of inflation over the last few years have not had a significant impact on revenues or profitability.  The Company does not expect inflation to have any near-term material effects on the sale of our products and services.  However, there can be no assurance that there will be no such effect in the future.

Environmental Standards and Other Governmental Regulations

Our operations are subject to numerous federal, state and local laws and regulations, including laws and regulations designed to protect the environment and to regulate the discharge of materials into the environment.

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The Environmental Protection Agency (EPA) has mandated that heavy-duty engine manufacturers meet new, stricter emissions guidelines, regarding nitrous oxides, for all engines built subsequent to January 1, 2007.  Historically, the industry has experienced an accelerated demand for trucks in the months preceding the effective date of the change in EPA guidelines, followed by a short-term decrease in demand in the months subsequent to the change. The Company does not expect the change in emission guidelines to have an affect on its 2004 results from operations.  The Company believes it is too early to determine how the change in emission guidelines will affect its results from operations subsequent to 2004.

Termination of Dealership Agreements Upon a Change of Control

As described in Item 1 “Business” and this Item 7, a substantial percentage of our revenues is derived from sales of Peterbilt trucks and John Deere products. Therefore, our business is highly dependant on the PACCAR and John Deere dealership agreements, which authorize us to sell Peterbilt and John Deere products in our market areas.  Our dealership agreements with PACCAR are terminable by PACCAR in the event the aggregate voting power of Mr. Rush and his family decreases below 30% with respect to the election of directors.  The John Deere dealership agreement would similarly be terminable by John Deere if the aggregate voting power of Mr. Rush and his family were to decrease below 25%.  As of December 31, 2003, Mr. Rush and his family owned 2,759,524 shares of Class A Common Stock and 2,759,524 shares of Class B Common Stock, or approximately 39.3% of the Company’s outstanding voting power.  The Company has no control over the transfer or disposition by Mr. Rush or by Mr. Rush’s estate of his Class A Common Stock or Class B Common Stock.  If Mr. Rush were to sell his Class B Common Stock or bequest his Class B Common Stock to nonfamily members or if Mr. Rush’s estate were required to liquidate his shares of Class B Common Stock to pay estate taxes or otherwise, the change of control provisions of the dealership agreements described above would be triggered and could cause the Company to lose its critical right to sell Peterbilt and John Deere products.  Any loss of rights under the Company’s dealership agreements would have a severely adverse effect on the Company’s results of operations.

Off-Balance Sheet Arrangements

The Company does not have off-balance sheet arrangements as of December 31, 2003.

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Contractual Obligations

The Company has certain contractual obligations which will impact its short and long-term liquidity.  At December 31, 2003, such obligations are as follows:

(1) Refer to Note 9 of Notes to Consolidated Financial Statements.

(2) Refer to Note 12 of Notes to Consolidated Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact the financial position, results of operations, or cash flows of the Company due to adverse changes in financial market prices, including interest rate risk, and other relevant market rate or price risks.

The Company is exposed to some market risk through interest rates, related to its floor plan borrowing arrangements, variable rate debt and discount rates related to finance sales.  Floor plan borrowings are based on the prime rate of interest and are used to meet working capital needs.  As of December 31, 2003, the Company had floor plan borrowings of approximately $108,235,000.  Assuming an increase in the prime rate of interest of 100 basis points, interest expense could increase by approximately $1,082,350.  The interest rate variability on all other debt would not have a material adverse effect on the Company’s financial statements.  The Company provides all customer financing opportunities to various finance providers.  The Company receives all finance charges in excess of a negotiated discount rate from the finance providers within 30 days.  The negotiated discount rate is variable, thus subject to interest rate fluctuations.  This interest rate risk is mitigated by the Company’s ability to pass discount rate increases to customers through higher financing rates.

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Item 8.  Financial Statements and Supplementary Data

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REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of Rush Enterprises, Inc.:

We have audited the accompanying consolidated balance sheets of Rush Enterprises, Inc., a Texas corporation, and subsidiaries as of December 31, 2002 and 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2003.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rush Enterprises, Inc., and subsidiaries as of December 31, 2002 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 2 to the consolidated financial statements, in 2002 the company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and other Intangible Assets.”

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RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2002 AND 2003

(In Thousands, Except Shares and Per Share Amounts)

The accompanying notes are an integral part of these consolidated financial statements.

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RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003

(In Thousands, Except Per Share Amounts)

The accompanying notes are an integral part of these consolidated financial statements.

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RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003

(In Thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003

(In Thousands)