RUSH ENTERPRISES INC \TX\ - Quarter Report: 2016 June (Form 10-Q)

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2016

OR

For the transition period from ___________________________ to ____________________________________________

Commission File Number 0-20797

RUSH ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

555 I.H. 35 South, Suite 500

New Braunfels, Texas 78130

(Address of principal executive offices)

(Zip Code)

(830) 302-5200

(Registrant’s telephone number, including area code)

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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]                   No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]                   No [   ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]                   No [X]

Indicated below is the number of shares outstanding of each of the issuer’s classes of common stock, as of August 1, 2016.

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2016 AND DECEMBER 31, 2015

(In Thousands, Except Shares)

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

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

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

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

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

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Certain statements contained in this Form 10-Q (or otherwise made by the Company or on the Company’s behalf from time to time in other reports, filings with the Securities and Exchange Commission (“SEC”), news releases, conferences, website postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act of 1934, as amended (the “Exchange Act”), notwithstanding that such statements are not specifically identified. Forward-looking statements include statements about the Company’s financial position, business strategy and plans and objectives of management of the Company for future operations. These forward-looking statements reflect the best judgments of the Company about the future events and trends based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management. Use of the words “may,” “should,” “continue,” “plan,” “potential,” “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements reflect our current view of the Company with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Please read Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, for a discussion of certain of those risks. Other unknown or unpredictable factors could also have a material adverse effect on future results. Although the Company believes that its expectations are reasonable as of the date of this Form 10-Q, it can give no assurance that such expectations will prove to be correct. The Company does not intend to update or revise any forward-looking statements unless securities laws require it to do so, and the Company undertakes no obligation to publicly release any revisions to forward-looking statements, whether because of new information, future events or otherwise.

The following comments should be read in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Note Regarding Trademarks Commonly Used in the Company’s Filings

Peterbilt^® is a registered trademark of Peterbilt Motors Company. PACCAR^® is a registered trademark of PACCAR, Inc. PacLease^® is a registered trademark of PACCAR Leasing Corporation. Navistar^® is a registered trademark of Navistar International Corporation. International^® is a registered trademark of Navistar International Transportation Corp. Idealease is a registered trademark of Idealease, Inc. aka Idealease of North America, Inc. Blue Bird^® is a registered trademark of Blue Bird Investment Corporation. IC Bus^® is a registered trademark of IC Bus, LLC. Fuso^® is a registered trademark of Mitsubishi Fuso Truck and Bus Corporation. Hino^® is a registered trademark of Hino Motors, Ltd. Isuzu^® is a registered trademark of Isuzu Motors Limited. Ford Motor Credit Company^® is a registered trademark of Ford Motor Company. Ford^® is a registered trademark of Ford Motor Company. SAP^® is a registered trademark of SAP Aktiengesellschaft. IBM^® is a registered trademark of International Business Machines Corporation. This report contains additional trade names or trademarks of other companies. Our use of such trade names or trademarks should not imply any endorsement or relationship with such companies.

General

Rush Enterprises, Inc. was incorporated in Texas in 1965 and consists of one reportable segment, the Truck Segment, and conducts business through our subsidiaries. Our principal offices are located at 555 IH 35 South, Suite 500, New Braunfels, Texas 78130.

We are a full-service, integrated retailer of commercial vehicles and related services. The Truck Segment includes the Company’s operation of a network of commercial vehicle dealerships under the name “Rush Truck Centers.” Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, Mitsubishi Fuso, IC Bus or Blue Bird. Through our strategically located network of Rush Truck Centers, we provide one-stop service for the needs of our commercial vehicle customers, including retail sales of new and used commercial vehicles, aftermarket parts sales, service and repair facilities, financing, leasing and rental, and insurance products.

Our Rush Truck Centers are principally located in high traffic areas throughout the United States. Since commencing operations as a Peterbilt heavy-duty truck dealer in 1966, we have grown to operate over 100 Rush Truck Centers in 21 states.

Our business strategy consists of providing solutions to the commercial vehicle industry through our network of commercial vehicle dealerships. We offer an integrated approach to meeting customer needs by providing service, parts and collision repair in addition to new and used commercial vehicle sales and leasing, plus financial services, vehicle upfitting, CNG fuel systems, vehicle telematics products, chrome accessories and tires. 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 as we expand our product offerings and extend our dealership network through strategic acquisitions of new locations and opening new dealerships in our existing areas of operations.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us 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. We believe the following accounting policies, which are also described in Note 2 of the Notes to the Consolidated Financial Statements, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Inventories

Inventories are stated at the lower of cost or market value. Cost is determined by specific identification of new and used commercial vehicle inventory and by the first-in, first-out method for parts and accessories. As the market value of our inventory typically declines over time, reserves are established based on historical loss experience and market trends. These reserves are charged to cost of sales and reduce the carrying value of our inventory on hand. An allowance is provided when it is anticipated that cost will exceed net realizable value less a reasonable profit margin.

Goodwill

Goodwill is tested for impairment by reporting unit utilizing a two-step process at least annually, or more frequently when events or changes in circumstances indicate that the asset might be impaired. The first step requires us to compare the fair value of the reporting unit (we consider our Truck Segment to be a reporting unit for purposes of this analysis), which is the same as the segment, to the respective carrying value. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is greater than the fair value, there is an indication that impairment may exist and a second step is required. In the second step of the analysis, the implied fair value of the goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.

We determine the fair value of our reporting unit using the discounted cash flow method. The discounted cash flow method uses various assumptions and estimates regarding revenue growth rates, future gross margins, future selling, general and administrative expenses and an estimated weighted average cost of capital. The analysis is based upon available information regarding expected future cash flows of each reporting unit discounted at rates consistent with the cost of capital specific to the reporting unit. This type of analysis contains uncertainties because it requires us to make assumptions and to apply judgment regarding our knowledge of our industry, information provided by industry analysts, and our current business strategy in light of present industry and economic conditions. If any of these assumptions change, or fail to materialize, the resulting decline in our estimated fair value could result in a material impairment charge to the goodwill associated with the reporting unit.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we used to test for impairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, or certain events occur that might adversely affect the reported value of goodwill in the future, we may be exposed to an impairment charge that could be material. Such events may include, but are not limited to, strategic decisions made in response to economic and competitive conditions or the impact of the current economic environment.

Goodwill was tested for impairment during the fourth quarter of 2015 and no impairment was required. The fair value of our reporting unit exceeded the carrying value of its net assets. As a result, we were not required to conduct the second step of the impairment test. We do not believe our reporting unit is at risk of failing step one of the impairment test.

Insurance Accruals

We are partially self-insured for a portion of the claims related to our property and casualty insurance programs, which requires us to make estimates regarding expected losses to be incurred. We engage a third-party administrator to assess any open claims and we adjust our accrual accordingly on a periodic basis. We are also partially self-insured for a portion of the claims related to our workers’ compensation and medical insurance programs. We use actuarial information provided from third-party administrators to calculate an accrual for claims incurred, but not reported, and for the remaining portion of claims that have been reported.

Changes in the frequency, severity, and development of existing claims could influence our reserve for claims and financial position, results of operations and cash flows. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to calculate our self-insured liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

Accounting for Income Taxes

Management judgment is required to determine the provisions for income taxes and to determine whether deferred tax assets will be realized in full or in part. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. When it is more likely than not that all or some portion of specific deferred income tax assets will not be realized, a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable. Accordingly, the facts and financial circumstances impacting state deferred income tax assets are reviewed quarterly and management’s judgment is applied to determine the amount of valuation allowance required, if any, in any given period.

Our income tax returns are periodically audited by tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions. In evaluating the exposures associated with our various tax filing positions, we adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available.

Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. Our effective income tax rate is also affected by changes in tax law, the level of earnings and the results of tax audits. Although we believe that the judgments and estimates are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material. An unfavorable tax settlement generally would require use of our cash and result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution. Our income tax expense includes the impact of reserve provisions and changes to reserves that we consider appropriate, as well as related interest.

Derivative Instruments and Hedging Activities

From 2012 until 2015, we utilized derivative financial instruments to manage our interest rate risk relating to the variability of cash flows and changes in the fair value of our financial instruments caused by movements in interest rates. We assessed hedge effectiveness at the inception and during the term of each hedge. Derivatives are reported at fair value on the accompanying Consolidated Balance Sheets.

The effective portion of the gain or loss on our cash flow hedges are reported as a component of accumulated other comprehensive loss. Hedge effectiveness was assessed quarterly by comparing the changes in cumulative gain or loss from the interest rate swap with the cumulative changes in the present value of the expected future cash flows of the interest rate swap that are attributable to changes in the LIBOR rate.

Results of Operations

The following discussion and analysis includes the Company’s historical results of operations for the three months and six months ended June 30, 2016 and 2015.

The following table sets forth certain financial data as a percentage of total revenues:

The following table sets forth for the periods indicated the percent of gross profit by revenue source:

The following table sets forth the unit sales and revenue for new heavy-duty, new medium-duty, new light-duty and used commercial vehicles and the absorption ratio (revenue in millions):

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

Key Performance Indicator

Absorption Ratio

Management uses several performance metrics to evaluate the performance of our commercial vehicle dealerships and considers Rush Truck Centers’ “absorption ratio” to be of critical importance. Absorption ratio is calculated by dividing the gross profit from the parts, service and body shop (collectively, “Aftermarket Services”) departments by the overhead expenses of all of a dealership’s departments, except for the selling expenses of the new and used commercial vehicle departments and carrying costs of new and used commercial vehicle inventory. When 100% absorption is achieved, all of the gross profit from the sale of a commercial vehicle, after sales commissions and inventory carrying costs, directly impacts operating profit. In 1999, our commercial vehicle dealerships’ absorption ratio was approximately 80%. Since 1999, we have made a concerted effort to increase our absorption ratio. Our commercial vehicle dealerships achieved a 110.3% absorption ratio for the second quarter of 2016 and a 118.9% absorption ratio for the second quarter of 2015.

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Our new and used Class 8 truck sales and aftermarket revenues in the second quarter of 2016 were impacted by the continued softness in the energy sector, a changing freight environment, excess Class 8 fleet vehicle capacity, and declining used truck values. Our new Class 8 truck sales in the second quarter of 2016 were severely impacted by reduced demand from several of our large fleet customers and the sluggish U.S. Class 8 truck market. Our Class 4 through 7 commercial vehicle sales remained solid during the second quarter, although down slightly, compared to the second quarter of 2015, due to the timing of deliveries to several large fleets earlier this year.

Our decline in aftermarket revenues during the second quarter resulted primarily from the negative impact of continued softness in the energy sector on our operations in the central United States. Additionally, our truck center consolidations in the first six months of 2016, along with the overall decline in our new and used Class 8 truck sales, further impacted aftermarket revenues this quarter.

Due to reduced order intake, excess capacity and depressed used Class 8 truck values, we expect new and used Class 8 truck sales to remain at current levels through the end of 2016. We expect our Class 4 through 7 commercial vehicle sales will remain flat with our second quarter performance through year end.

Revenues

Revenues decreased $303.8 million, or 22.8%, in the second quarter of 2016 compared to the second quarter of 2015.

Our Aftermarket Services revenues decreased $24.6 million, or 7.0%, in the second quarter of 2016 compared to the second quarter of 2015. This decrease was primarily the result of continued softness in the energy sector. We expect our Aftermarket Services revenues to remain relatively flat during 2016 compared to 2015.

Revenues from sales of new and used commercial vehicles decreased $281.0 million, or 30.6%, in the second quarter of 2016 compared to the second quarter of 2015. Our Class 8 new truck sales in the second quarter were severely impacted by reduced demand from several of our large fleet customers and from a significantly weaker Class 8 truck market.

We sold 2,592 heavy-duty trucks in the second quarter of 2016, a 44.4% decrease compared to 4,702 heavy-duty trucks in the second quarter of 2015, primarily as a result of the factors described above. According to A.C.T. Research Co., LLC (“A.C.T. Research”), a truck industry data and forecasting service provider, the U.S. Class 8 truck market decreased 23% in the second quarter of 2016 compared to the second quarter of 2015. A.C.T. Research currently predicts U.S. retail sales of Class 8 trucks of approximately 201,500 units in 2016, 170,000 units in 2017, and 200,000 units in 2018, compared to approximately 253,000 units in 2015. Our share of the U.S. Class 8 truck sales market was approximately 6.7% in 2015. We expect our U.S. Class 8 truck sales market share to range between 5.0% and 6.0% in 2016. This market share percentage would result in the sale of approximately 10,000 to 12,000 of Class 8 trucks in 2016 based on A.C.T. Research’s current U.S. retail sales estimate of 201,500 units.

We sold 2,792 Class 4 through 7 commercial vehicles, including 235 buses, in the second quarter of 2016, a 3.8% decrease compared to 2,902 Class 4 through 7 commercial vehicles, including 183 buses, in the second quarter of 2015. A.C.T. Research estimates that unit sales of Class 4 through 7 commercial vehicles in the U.S. increased approximately 7% in the second quarter of 2016, compared to the second quarter of 2015. A.C.T. Research currently predicts U.S. retail sales of Class 4 through 7 medium-duty commercial vehicles of approximately 230,200 units in 2016, 231,100 units in 2017, and 233,350 in 2018. In 2015, we achieved a 5.2% share of the Class 4 through 7 market in the U.S. We expect our market share to range between 5.0% and 5.5% of the U.S. Class 4 through 7 commercial vehicle sales in 2016. This market share percentage would result in the sale of approximately 11,500 to 12,700 of Class 4 through 7 commercial vehicles in 2016 based on A.C.T. Research’s current U.S. retail sales estimates of 230,200 units.

We sold 386 light-duty vehicles in the second quarter of 2016, a 15.5% decrease compared to 457 light-duty vehicles in the second quarter of 2015. We expect to sell approximately 1,500 light-duty vehicles in 2016.

We sold 1,750 used commercial vehicles in the second quarter of 2016, a 12.9% decrease compared to 2,009 used commercial vehicles in the second quarter of 2015. This decrease was primarily the result of an oversupply of used Class 8 trucks for sale across the U.S. We expect to sell approximately 7,000 used commercial vehicles in 2016. The volume of used commercial vehicle sales will be largely dependent upon our ability to acquire quality used commercial vehicles and maintain an adequate used commercial vehicle inventory throughout 2016.

Truck lease and rental revenues increased $2.9 million, or 5.8%, in the second quarter of 2016 compared to the second quarter of 2015. The increase in lease and rental revenues was primarily due to the number of units in service in the lease and rental fleet in 2016, compared to 2015. We expect lease and rental revenues to increase 6% to 8% during 2016, compared to 2015.

Finance and insurance revenues decreased $0.8 million, or 14.8%, in the second quarter of 2016 compared to the second quarter of 2015. This decrease was primarily the result of the decrease in new truck sales. We expect finance and insurance revenues to fluctuate proportionately with our new and used commercial vehicle sales in 2016. Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of our operating profits.

Gross Profit

Gross profit decreased $27.2 million, or 13.1%, in the second quarter of 2016, compared to the second quarter of 2015. This decrease was primarily the result of decreased sales of new Class 8 trucks and used commercial vehicles. Gross profit as a percentage of sales increased to 17.6% in the second quarter of 2016, from 15.6% in the second quarter of 2015. This increase in gross profit as a percentage of sales is a result of a change in our product sales mix. Commercial vehicle sales, a lower margin revenue item, decreased as a percentage of total revenues to 62.0% in the second quarter of 2016, from 69.0% in the second quarter of 2015. Aftermarket Services revenues, a higher margin revenue item, increased as a percentage of total revenues to 32.0% in the second quarter of 2016, from 26.6% in the second quarter of 2015.

Gross margins from our Aftermarket Services operations decreased to 36.3% in the second quarter of 2016, from 37.1% in the second quarter of 2015. Gross profit from our Aftermarket Services operations decreased to $119.1 million in the second quarter of 2016, from $131.0 million in the second quarter of 2015. Historically, gross margins on parts sales range from 27% to 28% and gross margins on service and body shop operations range from 67% to 68%. Gross profits from parts sales represented 56% of total gross profit for Aftermarket Services operations in the second quarter of 2016 and the second quarter of 2015. Service and body shop operations represented 44% of total gross profit for Aftermarket Services operations in the second quarter of 2016 and the second quarter of 2015. We expect blended gross margins on Aftermarket Services operations to range from 36.0% to 37.0% in 2016.

Gross margins on Class 8 truck sales increased to 7.3% in the second quarter of 2016, from 6.6% in the second quarter of 2015. This increase is attributable to the sales mix in the second quarter of 2016, which consisted of fewer sales to large fleet customers. In 2016, we expect overall gross margins from Class 8 truck sales of approximately 6.5% to 7.0%.

Gross margins on medium-duty commercial vehicle sales increased to 6.0% in the second quarter of 2016, from 5.7% in the second quarter of 2015. For 2016, we expect overall gross margins from medium-duty commercial vehicle sales of approximately 5.5% to 6.0%, but this will largely depend upon the mix of purchasers and types of vehicles sold.

Gross margins on used commercial vehicle sales decreased to 9.2% in the second quarter of 2016, from 10.6% in the second quarter of 2015. This decrease is primarily related to the oversupply of used Class 8 trucks for sale across the U.S. We expect margins on used commercial vehicles to range between 8.0% and 10.0% during 2016, depending on general economic conditions and our ability to acquire quality used vehicles.

Gross margins from truck lease and rental sales increased to 13.5% in the second quarter of 2016, from 10.4% in the second quarter of 2015. We expect gross margins from lease and rental sales of approximately 12.0% to 14.0% during 2016. Our policy is to depreciate our lease and rental fleet using a straight line method over each customer’s contractual lease term. The lease unit is depreciated to a residual value that attempts to approximate fair value at the expiration of the lease term. This policy results in the Company realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term.

Finance and insurance revenues and other income, as described above, have limited direct costs and, therefore, contribute a disproportionate share of gross profit.

Selling, General and Administrative Expenses

Selling, General and Administrative (“SG&A”) expenses decreased $15.2 million, or 9.4%, in the second quarter of 2016, compared to the second quarter of 2015. SG&A expenses as a percentage of total revenue increased to 14.2% in the second quarter of 2016, from 12.1% in the second quarter of 2015. SG&A expenses as a percentage of total revenues have recently ranged from 12.1% to 14.7%. In general, when new and used commercial vehicle revenues decrease as a percentage of total revenues, SG&A expenses as a percentage of total revenues will be at, or exceed, the higher end of this range. For 2016, we expect SG&A expenses as a percentage of total revenues to range from 13.5% to 14.5% and the selling portion of SG&A expenses to be approximately 25.0% to 30.0% of new and used commercial vehicle gross profit.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $2.0 million, or 18.4%, in the second quarter of 2016, compared to the second quarter of 2015. This increase was primarily due to the construction of new dealerships and dealership expansions.

Interest Expense, Net

Net interest expense increased $0.2 million, or 4.5%, in the second quarter of 2016 compared to the second quarter of 2015. Net interest expense in 2016 will depend on inventory levels and the amount of cash available to make prepayments on our floor plan arrangements.

Income before Income Taxes

As a result of the factors described above, income before income taxes decreased $14.2 million, or 44.3% in the second quarter of 2016, compared to the second quarter of 2015.

Income Taxes

Income taxes decreased $5.4 million, or 43.5%, in the second quarter of 2016, compared to the second quarter of 2015. We provided for taxes at a 39.25% effective rate in the second quarter of 2016 and 38.75% in the second quarter of 2015. We expect our effective tax rate to be approximately 39.25% of pretax income in 2016.

Six Months Ended June 30, 2016, Compared to Six Months Ended June 30, 2015

Unless otherwise stated below, our variance explanations and future expectations with regard to the items discussed in this section are set forth in the discussion of the “Three Months Ended June 30, 2016, Compared to Three Months Ended June 30, 2015.”

Revenues decreased $426.5 million, or 16.9%, in the first six months of 2016, compared to the first six months of 2015. Sales of new and used commercial vehicles decreased $412.7 million, or 24.0%, in the first six months of 2016, compared to the first six months of 2015.

Aftermarket Services revenues decreased $19.7 million, or 2.9%, in the first six months of 2016, compared to the first six months of 2015.

We sold 5,271 heavy-duty trucks in the first six months of 2016, a 39.9% decrease compared to 8,776 heavy-duty trucks in the first six months of 2015. Our new Class 8 truck sales in the first six months of 2016 were impacted by lost sales and delayed deliveries to several of our large fleet customers. According to A.C.T. Research, retail sales in the U.S. Class 8 truck market decreased 15.3% in the first six months of 2016, compared to the first six months of 2015.

We sold 6,063 medium-duty commercial vehicles, including 433 buses, in the first six months of 2016. This represented an 8.5% increase compared to 5,588 medium-duty commercial vehicles, including 452 buses, in the first six months of 2015. A.C.T. Research estimates that unit sales of Class 4 through 7 commercial vehicles in the U.S increased approximately 13.5% in the first six months of 2016, compared to the first six months of 2015.

We sold 3,485 used commercial vehicles in the first six months of 2016, a 10.0% decrease compared to 3,871 used commercial vehicles in the first six months of 2015.

Truck lease and rental revenues increased $6.0 million, or 6.1%, in the first six months of 2016, compared to the first six months of 2015.

Finance and insurance revenues decreased $0.9 million, or 9.4%, in the first six months of 2016, compared to the first six months of 2015.

Gross Profit

Gross profit decreased $37.5 million, or 9.3%, in the first six months of 2016, compared to the first six months of 2015. Gross profit as a percentage of sales increased to 17.3% in the first six months of 2016, from 15.9% in the first six months of 2015.

Gross margins from Aftermarket Services operations decreased to 36.2% in the first six months of 2016, from 36.7% in the first six months of 2015. Gross profit for Aftermarket Services was $242.8 million in the first six months of 2016, compared to $253.4 million in the first six months of 2015. Gross profits from parts sales represented 56% of total gross profit for Aftermarket Services operations in the first six months of 2016 and the first six months of 2015. Service and body shop operations represented 44% of total gross profit for Aftermarket Services operations in the first six months of 2016 and the first six months of 2015.

Gross margins on Class 8 truck sales increased to 7.0% in the first six months of 2016, from 6.7% in the first six months of 2015.

Gross margins on medium-duty commercial vehicle sales increased to 5.8% in the first six months of 2016, from 5.4% in the first six months of 2015.

Gross margins on used commercial vehicle sales decreased to 9.6% in the first six months of 2016, from 11.8% in the first six months of 2015.           

Gross margins from truck lease and rental sales decreased to 11.9% in the first six months of 2016, from approximately 12.3% in the first six months of 2015.

Finance and insurance revenues and other income, as described above, has limited direct costs and, therefore, contributes a disproportionate share of gross profit.

Selling, General and Administrative Expenses

SG&A expenses decreased $5.4 million, or 1.7%, in the first six months of 2016, compared to the first six months of 2015. SG&A expenses as a percentage of sales was 14.7% in the first six months of 2016, and 12.4% in the first six months of 2015.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $4.6 million, or 22.3%, in the first six months of 2016 compared to 2015.

Interest Expense, Net

Net interest expense increased $1.5 million, or 22.4%, in the first six months of 2016, compared to the first six months of 2015.

Income before Income Taxes

Income before income taxes decreased $37.6 million, or 63.4%, in the first six months of 2016, compared to the first six months of 2015.

Provision for Income Taxes

Income taxes decreased $14.5 million, or 62.9%, in the first six months of 2016, compared to the first six months of 2015. We provided for taxes at a 39.25% rate in the first six months of 2016 and 38.75% in the first six months of 2015.

Liquidity and Capital Resources

Our short-term cash requirements are primarily for working capital, inventory financing, the renovation and expansion of existing facilities and the construction or purchase of new facilities. Historically, these cash requirements have been met through the retention of profits, borrowings under our floor plan arrangements and bank financings. As of June 30, 2016, we had working capital of approximately $97.9 million, including $92.7 million in cash available to fund our operations. We believe that these funds are sufficient to meet our operating requirements for at least the next twelve months. From time to time, we utilize our excess cash on hand to pay down our outstanding borrowings under our Floor Plan Credit Agreement, and the resulting interest earned is recognized as an offset to our gross interest expense under the credit agreement.

We have a secured line of credit that provides for a maximum borrowing of $17.5 million. There were no advances outstanding under this secured line of credit at June 30, 2016, however, $13.2 million was pledged to secure various letters of credit related to self-insurance products, leaving $4.3 million available for future borrowings as of June 30, 2016.

Our long-term real estate debt and floor plan financing agreements require us to satisfy various financial ratios such as the debt-to-worth ratio, leverage ratio and the fixed charge coverage ratio and certain requirements for tangible net worth and GAAP net worth. As of June 30, 2016, we were in compliance with all debt covenants related to debt secured by real estate and lease and rental units and our floor plan credit agreements. We do not anticipate any breach of the covenants in the foreseeable future.

We expect to purchase or lease trucks worth approximately $150.0 million to $200.0 million for our leasing operations during 2016, depending on customer demand, all of which will be financed. We also expect to make capital expenditures for recurring items such as computers, shop tools and equipment and vehicles of approximately $20.0 million to $25.0 million during 2016.

We are currently under contract to purchase real estate in Colorado at an estimated cost of $6.8 million, which is expected to close in the third quarter of 2016.

On December 4, 2015, we announced that our Board of Directors authorized the repurchase, from time to time, of up to an aggregate of $40.0 million shares of Class A Common Stock and/or Class B Common Stock. This stock repurchase program replaced a prior $40 million repurchase program. Repurchases, if any, will be made at times and in amounts as we deem appropriate and may be made through open market transactions at prevailing market prices, privately negotiated transactions or by other means in accordance with federal securities laws. The actual timing, number and value of repurchases under the new stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including market conditions, stock price and other factors, including those related to the ownership requirements of its dealership agreements with Peterbilt. The stock repurchase program expires on November 30, 2016, and may be suspended or discontinued at any time. As of June 30, 2016, the Company has purchased approximately $18.2 million of its Class A common stock and $2.1 million of its Class B common stock under this repurchase program.

We anticipate funding the capital expenditures for the improvement and expansion of existing facilities and recurring expenses through our operating cash flows. We have the ability to fund the construction or purchase of new facilities through our operating cash flows or by financing 70% to 80% of the appraised value of such facility.

We have no other material commitments for capital expenditures as of June 30, 2016. However, we will continue to purchase vehicles for our lease and rental division and authorize capital expenditures for improvement and expansion of our existing dealership facilities and construction or purchase of new facilities based on market opportunities.

Cash Flows

Cash and cash equivalents increased by $27.8 million during the six months ended June 30, 2016, and decreased by $118.5 million during the six months ended June 30, 2015. The major components of these changes are discussed below.

Cash Flows from Operating Activities

Cash flows from operating activities include net income adjusted for non-cash items and the effects of changes in working capital. During the first six months of 2016, operating activities resulted in net cash provided by operations of $223.0 million. Net cash provided by operating activities primarily consisted of $13.2 million in net income, as well as non-cash adjustments related to depreciation and amortization of $78.5 million, impairment of assets of $8.2 million, and stock-based compensation, including tax benefit, of $7.8 million. Cash provided by operating activities included an aggregate of $115.1 million net change in operating assets and liabilities. Included in the net change in operating assets and liabilities were cash inflows of $27.6 million from the decrease in accounts receivable, $58.0 million from decreases in inventory, $21.8 million from the decrease in other assets, net and $11.0 million from the net increase in floor plan, trade which were offset by cash outflows of $2.2 million from decreases in accounts payable and accrued liabilities, and $1.2 million from a decrease in customer deposits. The majority of commercial vehicle inventory is financed through our floor plan credit agreements.

During the first six months of 2015, operating activities resulted in net cash provided by operations of $62.3 million. Net cash provided by operating activities primarily consisted of $36.4 million in net income, as well as non-cash adjustments related to depreciation and amortization of $69.8 million, and stock-based compensation, including tax benefit, of $7.6 million. Cash used in operating activities included an aggregate of $48.3 million net change in operating assets and liabilities. Included in the net change in operating assets and liabilities were cash inflows of $17.3 from the decrease in prepaid expenses and other assets, net which were offset by cash outflows of $14.3 million from the net decrease in floor plan, trade, $20.3 million from increases in inventory, net of acquisitions, $4.7 million from an increase in accounts receivable, $1.1 million from decreases in accounts payable and accrued liabilities, and $25.2 million from a decrease in customer deposits. The majority of commercial vehicle inventory is financed through our floor plan credit agreements.

In June 2012, we entered into a wholesale financing agreement with Ford Motor Credit Company that provides for the financing of, and is collateralized by, our Ford new vehicle inventory. This wholesale financing agreement bears interest at a rate of Prime plus 150 basis points minus certain incentives and rebates; however, the prime rate is defined to be a minimum of 3.75%. As of June 30, 2016, the interest rate on the wholesale financing agreement was 5.25% before considering the applicable incentives. As of June 30, 2016, we had an outstanding balance of $73.4 million under the Ford Motor Credit Company wholesale financing agreement.

Cash Flows from Investing Activities

During the first six months of 2016, cash used in investing activities was $115.7 million. Cash flows used in investing activities consist primarily of cash used for capital expenditures. Capital expenditures of $115.3 million during the first six months of 2016 consisted primarily of purchases of property and equipment and improvements to our existing dealership facilities. Property and equipment purchases during the first six months of 2016 included $71.9 million for additional units for the rental and leasing operations, which were directly offset by borrowings of long-term debt. We expect to purchase or lease trucks worth approximately $150.0 million to $200.0 million for our leasing operations in 2016, depending on customer demand, all of which will be financed. During 2016, we expect to make capital expenditures for recurring items such as computers, shop equipment and vehicles of $20.0 million to $25.0 million.

During the first six months of 2015, cash used in investing activities was $221.9 million. Cash flows used in investing activities consist primarily of cash used for capital expenditures and business acquisitions. Capital expenditures of $164.2 million during the first six months of 2015 consisted primarily of purchases of property and equipment and improvements to our existing dealership facilities. Property and equipment purchases during the first six months of 2015 included $99.5 million for additional units for the rental and leasing operations, which were directly offset by borrowings of long-term debt. Cash used for business acquisitions was $57.9 million during the six months ended June 30, 2015, which was partially offset by borrowings of long-term debt and floor plan notes payable.

Cash Flows from Financing Activities

Cash flows from financing activities include borrowings and repayments of long-term debt and net proceeds of floor plan notes payable, non-trade. During the first six months of 2016, we used $79.4 million in net cash from financing activities, primarily related to $35.7 million from net payments on floor plan notes payable, non-trade, $93.4 million used for principal repayments of long-term debt and capital lease obligations and $20.3 million used to purchase 934,171 shares of Rush Class A Common Stock and 111,967 shares of Rush Class B common stock during the first six months of 2016. These cash outflows were partially offset by borrowings of $68.5 million of long-term debt, and $2.4 million from the issuance of shares related to equity compensation plans. The borrowings of long-term debt were primarily related to purchasing units for the rental and leasing operations.

During the first six months of 2015, we generated $41.0 million in net cash flow from financing activities, primarily related to borrowings of $85.0 million of long-term debt, $39.8 million from net draws on floor plan notes payable, non-trade and $2.0 million from the issuance of shares related to equity compensation plans. These cash inflows were partially offset by cash outflows of $83.8 million used for principal repayments of long-term debt and capital lease obligations and $1.5 million used to purchase 56,077 shares of Rush Class B common stock during the first six months of 2015. The borrowings of long-term debt were primarily related to purchasing units for the rental and leasing operations.

Most of our commercial vehicle purchases are made on terms requiring payment to the manufacturer within 15 days or less from the date the commercial vehicles are invoiced from the factory. On July 7, 2016, we entered into the Third Amended and Restated Credit Agreement with BMO Harris Bank N.A. (“the Floor Plan Credit Agreement”). The amendment increased the aggregate loan commitment to $875.0 million. Borrowings under the Floor Plan Credit Agreement bear interest at an annual rate equal to the (A) the greater of (i) zero and (ii) three month LIBOR rate, determined on the last day of the prior month, plus (B) 1.51% and are payable monthly.  In addition, we are required to pay a monthly working capital fee equal to 0.16% per annum multiplied by the amount of voluntary prepayments of new and used inventory loans. Loans under the Floor Plan Credit Agreement for the purchase of used inventory are limited to $150.0 million. We may terminate the Floor Plan Credit Agreement at any time, although if we do so we must pay a prepayment processing fee equal to (i) 2.0% of the aggregate revolving loan commitments if such termination occurs on or before January 1, 2018; (ii) 1.0% of the aggregate revolving loan commitments if such termination occurs after January 1, 2018 and on or prior to July 1, 2018; and (iii) $500,000 if such termination occurs after July 1, 2018 and prior to June 30, 2019, subject to specified limited exceptions. On June 30, 2016, we had approximately $658.0 million outstanding under the Second Amended and Restated Credit Agreement with BMO Harris Bank N.A. The average daily outstanding borrowings under the Second Amended and Restated Credit Agreement were $646.0 million during the three months ended June 30, 2016. Periodically, we utilize our excess cash on hand to pay down our outstanding borrowings under the Floor Plan Credit Agreement, and the resulting interest earned is recognized as an offset to our gross interest expense under the Floor Plan Credit Agreement.

Navistar Financial Corporation and Peterbilt offer trade terms that provide an interest-free inventory stocking period for certain new commercial vehicles.  If the commercial vehicle is not sold within the interest-free period, we then finance the commercial vehicle under the Floor Plan Credit Agreement. 

Backlog

On June 30, 2016, our backlog of commercial vehicle orders was approximately $878.7 million, as compared to a backlog of commercial vehicle orders of approximately $1,054.9 million on June 30, 2015. Our backlog is determined quarterly by multiplying the number of new commercial vehicles for each particular type of commercial vehicle ordered by a customer at our Rush Truck Centers by the recent average selling price for that type of commercial vehicle. We include only confirmed orders in our backlog. However, such orders are subject to cancellation. In the event of order cancellation, we have no contractual right to the total revenues reflected in our backlog. The delivery time for a custom-ordered commercial vehicle varies depending on the truck specifications and demand for the particular model ordered. We sell the majority of our new heavy-duty commercial vehicles by customer special order and we sell the majority of our medium- and light-duty commercial vehicles out of inventory. Orders from a number of our major fleet customers are included in our backlog as of June 30, 2016 and we expect to fill the majority of our backlog orders during 2016.

Seasonality

Our Truck Segment is moderately seasonal. Seasonal effects on new commercial vehicle sales related to the seasonal purchasing patterns of any single customer type are mitigated by the diverse geographic locations of our dealerships and our diverse customer base, including regional and national fleets, local governments, corporations and owner operators. However, commercial vehicle parts and service operations historically have experienced higher sales volumes in the second and third quarters.

Cyclicality

Our business is dependent on a number of factors relating to general economic conditions, including fuel prices, interest rate fluctuations, credit availability, economic recessions, environmental and other government regulations and customer business cycles. Unit sales of new commercial vehicles have historically been subject to substantial cyclical variation based on these general economic conditions. According to data published by A.C.T. Research, in recent years, total U.S. retail sales of new Class 8 trucks have ranged from a low of approximately 97,000 in 2009, to a high of approximately 291,000 in 2006. Through geographic expansion, concentration on higher margin Aftermarket Services and diversification of our customer base, we have attempted to reduce the negative impact of adverse general economic conditions or cyclical trends affecting the heavy-duty truck industry on our earnings.

Off-Balance Sheet Arrangements

Other than operating leases, we do not have any obligation under any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, that has or is reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Environmental Standards and Other Governmental Regulations

We are subject to a wide range of federal, state and local environmental laws and regulations, including those governing discharges into the air and water; the operation and removal of underground and aboveground storage tanks; the use, handling, storage and disposal of hazardous substances, petroleum and other materials; and the investigation and remediation of environmental impacts. As with commercial vehicle dealerships generally, and Aftermarket Services operations in particular, our business involves the generation, use, storage, handling and contracting for recycling or disposal of hazardous materials or wastes and other environmentally sensitive materials. We have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with such laws and regulations.

Our operations involving the use, handling, storage and disposal of hazardous and nonhazardous materials are subject to the requirements of the federal Resource Conservation and Recovery Act, or RCRA, and comparable state statutes. Pursuant to these laws, federal and state environmental agencies have established approved methods for handling, storage, treatment, transportation and disposal of regulated substances and wastes with which we must comply. Our business also involves the operation and use of aboveground and underground storage tanks. These storage tanks are subject to periodic testing, containment, upgrading and removal under RCRA and comparable state statutes. Furthermore, investigation or remediation may be necessary in the event of leaks or other discharges from current or former underground or aboveground storage tanks.

We may also have liability in connection with materials that were sent to third-party recycling, treatment, or disposal facilities under the federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and comparable state statutes. These statutes impose liability for investigation and remediation of environmental impacts without regard to fault or the legality of the conduct that contributed to the impacts. Responsible parties under these statutes may include the owner or operator of the site where impacts occurred and companies that disposed or arranged for the disposal of the hazardous substances released at these sites. These responsible parties also may be liable for damages to natural resources. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other materials into the environment.

The federal Clean Water Act and comparable state statutes prohibit discharges into regulated waters without the necessary permits, require containment of potential discharges of oil or hazardous substances, and require preparation of spill contingency plans. Water quality protection programs govern certain discharges from some of our operations. Similarly, the federal Clean Air Act and comparable state statutes regulate emissions of various air emissions through permitting programs and the imposition of standards and other requirements.

We believe that we do not currently have any material environmental liabilities and that compliance with environmental laws and regulations will not, individually or in the aggregate, have a material adverse effect on our results of operations, financial condition or cash flows. However, soil and groundwater impacts are known to exist at some of our current properties. Further, environmental laws and regulations are complex and subject to change. In addition, in connection with acquisitions, it is possible that we will assume or become subject to new or unforeseen environmental costs or liabilities, some of which may be material. In connection with our dispositions, or prior dispositions made by companies we acquire, we may retain exposure for environmental costs and liabilities, some of which may be material. Compliance with current or amended, or new or more stringent, laws or regulations, stricter interpretations of existing laws or the future discovery of environmental conditions could require additional expenditures by us, and those expenditures could be material.

The Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”), on behalf of the U.S. Department of Transportation, issued final rules on September 15, 2011 associated with reducing greenhouse gas (“GHG”) emissions and improving the fuel efficiency of medium and heavy-duty trucks and buses beginning in model year 2014 and being phased in through model year 2018.  On June 19, 2015, the EPA and NHTSA proposed further GHG and fuel efficiency standards that would apply to medium and heavy-duty vehicles and buses and would be phased in between model years 2021 through 2027.  We do not believe that the foregoing adopted or proposed standards will negatively impact our business, however, future legislation or other new regulations that may be adopted to address GHG emissions or fuel efficiency standards may negatively impact our business.  Additional regulations could result in increased compliance costs, additional operating restrictions or changes in demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.

ITEM 3. 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.

We are exposed to some market risk through interest rates related to our floor plan financing agreements, variable rate real estate debt and discount rates related to finance sales. The majority of floor plan debt and variable rate real estate debt is based on LIBOR. As of June 30, 2016, we had floor plan borrowings and variable interest rate real estate debt of approximately $947.6 million. Assuming an increase or decrease in LIBOR of 100 basis points, annual interest expense could correspondingly increase or decrease by approximately $9.5 million.

We offer all customer financing opportunities to various finance providers. We receive all finance charges in excess of a negotiated discount rate from the finance providers in the month following the date of the financing. The negotiated discount rate is variable, thus subject to interest rate fluctuations. This interest rate risk is mitigated by our ability to pass discount rate increases to customers through higher financing rates.

We are also exposed to some market risk through interest rates related to the investment of our current cash and cash equivalents, which totaled $92.7 million on June 30, 2016. These funds are generally invested in variable interest rate instruments in accordance with our investment policy. As such instruments mature and the funds are reinvested, we are exposed to changes in market interest rates. This risk is mitigated by management’s ongoing evaluation of the best investment rates available for current and noncurrent high quality investments. If market interest rates were to increase or decrease immediately and uniformly by 100 basis points, our annual interest income could correspondingly increase or decrease by approximately $0.9 million.

In the past, we invested in interest-bearing short-term investments consisting of investment-grade auction rate securities classified as available-for-sale. Auctions for investment grade securities held by us have failed. The auction rate securities continue to pay interest in accordance with the terms of the underlying security; however, liquidity will be limited until there is a successful auction or until such time as other markets for these investments develop. As of June 30, 2016, we hold auction rate securities, with underlying tax-exempt municipal bonds that mature in 2030, that have a fair value of $6.4 million. Given the current market conditions in the auction rate securities market, if we determine that the fair value of these securities temporarily decreases by an additional 10%, our equity could correspondingly decrease by approximately $640,000. If it is determined that the fair value of these securities is other-than-temporarily impaired by 10%, we could record a loss on our Consolidated Statements of Income of approximately $640,000. For further discussion of the risks related to our auction rate securities, see Note 6 – Financial Instruments and Fair Value of the Notes to Consolidated Financial Statements.

ITEM 4. Controls and Procedures.

The Company, under the supervision and with the participation of management, including the Company’s principal executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2016 to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to Company management, including the principal executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting that occurred during the three months ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. 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 or results of operations. 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 financial condition or results of operations for the fiscal period in which such resolution occurred.

ITEM 1A. Risk Factors.

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A, Part I of our 2015 Annual Report on Form 10-K (the “2015 Annual Report”) describes some of the risks and uncertainties associated with our business that have the potential to materially affect our business, financial condition or results of operations.

There has been no material change in our risk factors disclosed in our 2015 Annual Report.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Company did not make any unregistered sales of equity securities during the second quarter of 2016.

A summary of the Company’s stock repurchase activity for the second quarter of 2016 is as follows:

 ______________

ITEM 3. Defaults Upon Senior Securities.

Not Applicable

ITEM 4. Mine Safety Disclosures.

Not Applicable

ITEM 5. Other Information.

Not Applicable

ITEM 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX

31