RUSH ENTERPRISES INC \TX\ 10-K

Item 1. Business   References herein to “the Company,” “Rush Enterprises,” “we,” “our” or “us” mean Rush Enterprises, Inc., a Texas corporation, and its subsidiaries unless the context requires otherwise.   Access to Company Information   We electronically file annual reports, quarterly reports, proxy statements and other reports and information statements with the SEC. You may read and copy any of the materials that we have filed with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. You may obtain information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also available to you on the SEC’s website at www.sec.gov.   We make certain of our SEC filings available, free of charge, through our website, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports. These filings are available as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Our website address is www.rushenterprises.com. The information contained on our website, or on other websites linked to our website, is not incorporated into this report or otherwise made part of this report.     4 Table of Contents   General   Rush Enterprises, Inc. was incorporated in Texas in 1965 and consists of one reportable segment, the Truck Segment, and conducts business through its 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, 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 125 Rush Truck Centers in 23 states. In 2019, we purchased a 50% equity interest in an entity in Canada, Rush Truck Centres of Canada Limited (“RTC Canada”), which currently owns and operates 15 International locations in Ontario, Canada.   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 repairs in addition to new and used commercial vehicle sales and leasing, plus financial services, vehicle upfitting, CNG fuel systems and vehicle telematics products. 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 existing areas of operations to enable us to better serve our customers.   Rush Truck Centers. Our Rush Truck Centers are located in Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Missouri, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah and Virginia. The following chart reflects our franchises and parts, service and collision repair operations by location as of February 15, 2022:   Rush Truck Center Location Commercial Vehicle Franchise(s) Truck Sales Parts and Service Collision Center Alabama              Birmingham None Yes Yes No      Mobile Peterbilt Yes Yes Yes Arizona              Flagstaff Peterbilt No Yes No      Phoenix Peterbilt, Hino Yes Yes Yes      Phoenix East Peterbilt No Yes No      Tucson Peterbilt, Hino Yes Yes No      Yuma Peterbilt Yes Yes No Arkansas              Jonesboro International, IC Bus No Yes No      Lowell International, Isuzu, IC Bus Yes Yes Yes      North Little Rock International, IC Bus Yes Yes Yes      Pine Bluff International, IC Bus Yes Yes No      Russellville International, IC Bus Yes Yes No California              Ceres Ford Yes Yes No      Fontana Heavy-Duty Peterbilt Yes Yes Yes      Fontana Medium-Duty Peterbilt, Hino, Isuzu Yes Yes No      Fontana Vocational None No Yes No      Long Beach Peterbilt No Yes No      Los Angeles Peterbilt Yes Yes Yes      San Diego Peterbilt, Hino, Ford Yes Yes No   5 Table of Contents   Rush Truck Center Location Commercial Vehicle Franchise(s) Truck Sales Parts and Service Collision Center      Sylmar Peterbilt Yes Yes No      Victorville Peterbilt Yes Yes No      Whittier Ford, Isuzu Yes Yes No Colorado              Colorado Springs Peterbilt Yes Yes No      Denver Peterbilt, Ford, Isuzu Yes Yes Yes      Greeley Peterbilt Yes Yes No      Pueblo Peterbilt Yes Yes No Florida              Haines City Peterbilt Yes Yes Yes      Jacksonville Peterbilt, Hino Yes Yes No      Jacksonville East Peterbilt Yes Yes No      Lake City Peterbilt Yes Yes No      Miami None No Yes No      Orlando Heavy-Duty Peterbilt, Isuzu Yes Yes No      Orlando Light & Medium-Duty Ford Yes Yes No      Orlando North Isuzu Yes Yes No      Orlando South Isuzu Yes Yes No      Tampa Peterbilt Yes Yes No Georgia               Atlanta International, Hino, Isuzu, IC Bus Yes Yes No      Atlanta Bus Center IC Bus Yes Yes Yes      Augusta International, IC Bus Yes Yes No      Columbus International, Isuzu, IC Bus Yes Yes No      Doraville International, Hino, Isuzu, IC Bus Yes Yes No      Gainesville International, IC Bus Yes Yes No      Macon International Yes Yes No      Smyrna International, Hino, Isuzu, IC Bus Yes Yes No      Tifton International, IC Bus Yes Yes No      Valdosta International Yes Yes No Idaho              Boise International, Hino, IC Bus Yes Yes Yes      Idaho Falls International, IC Bus Yes Yes Yes      Lewiston International Yes Yes No      Twin Falls International Yes Yes No Illinois              Bloomington International, Hino Yes Yes No      Carol Stream International Yes Yes No      Champaign International Yes Yes Yes      Chicago International Yes Yes Yes      Effingham International Yes Yes Yes      Elk Grove Hino, Isuzu Yes Yes No      Huntley International Yes Yes No      Joliet International Yes Yes No      Quincy International Yes Yes No      Springfield International Yes Yes Yes Indiana              Gary International Yes Yes No      Indianapolis International Yes Yes Yes Kansas              Kansas City Hino, Isuzu Yes Yes No      Salina International Yes Yes No      Topeka International Yes Yes No      Wichita International Yes Yes No Kentucky              Bowling Green Peterbilt Yes Yes No Missouri              Cape Girardeau International Yes Yes No   6 Table of Contents   Rush Truck Center Location Commercial Vehicle Franchise(s) Truck Sales Parts and Service Collision Center      Joplin International Yes Yes No      Kansas City International, Dennis Eagle Yes Yes Yes      Kansas City Used Trucks None Yes No No      St. Joseph International Yes Yes No      St. Louis International Yes Yes No      St. Peters International Yes Yes No      Sedalia International No Yes No      Springfield International, Isuzu Yes Yes No      West Plains International Yes Yes No Nevada              Las Vegas Peterbilt Yes Yes No New Mexico              Albuquerque Peterbilt Yes Yes Yes      Farmington Peterbilt No Yes No      Las Cruces Peterbilt Yes Yes No North Carolina              Asheville International Yes Yes No      Charlotte International, Hino, Isuzu Yes Yes Yes      Hickory International Yes Yes No Ohio              Akron International, IC Bus Yes Yes No      Cincinnati International, IC Bus, Isuzu, Ford Yes Yes Yes      Cleveland International, IC Bus Yes Yes No      Columbus International, IC Bus, Isuzu(1) Yes Yes No      Dayton International, IC Bus, Isuzu Yes Yes No      Lima International, IC Bus Yes Yes No Oklahoma               Ardmore Peterbilt Yes Yes No      Oklahoma City Peterbilt, Hino, Ford, Isuzu Yes Yes Yes      Tulsa Peterbilt, Hino Yes Yes Yes Pennsylvania               Greencastle None Yes Yes No Tennessee              Memphis International, Isuzu Yes Yes Yes      Memphis Used Trucks None Yes Yes No      Nashville Peterbilt Yes Yes Yes Texas              Abilene Peterbilt Yes Yes No      Amarillo Peterbilt Yes Yes No      Arlington Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes No      Austin Peterbilt, Hino, Isuzu, Blue Bird, Micro Bird, Elkhart Yes Yes No      Austin North Peterbilt No Yes No      Beaumont Peterbilt Yes Yes No      Brownsville Peterbilt, Elkhart Yes Yes No      College Station Peterbilt Yes Yes No      Corpus Christi Peterbilt, Hino, Isuzu, Blue Bird, Elkhart Yes Yes No      Cotulla Peterbilt No Yes No      Dalhart Peterbilt No Yes No      Dallas Heavy-Duty Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes Yes      Dallas Medium-Duty Peterbilt, Hino, Blue Bird, Micro Bird, Elkhart Yes Yes No      Dallas Light & Medium-Duty Ford, Isuzu Yes Yes No      Dallas South Peterbilt Yes Yes No   (1)         Our Isuzu franchise is operated out of our Rush Truck Leasing - Columbus location.   7 Table of Contents   Rush Truck Center Location Commercial Vehicle Franchise(s) Truck Sales Parts and Service Collision Center      El Paso Peterbilt, Hino, Isuzu Yes Yes Yes      Fort Worth Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes No      Houston Peterbilt, Hino, Blue Bird, Micro Bird, Elkhart Yes Yes Yes      Houston Medium-Duty Peterbilt, Hino Yes Yes No      Laredo Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes Yes      Lubbock Peterbilt Yes Yes No      Lufkin Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes Yes      Odessa Peterbilt Yes Yes No      Pharr Peterbilt, Hino, Blue Bird, Micro Bird, Elkhart Yes Yes Yes      San Antonio Peterbilt, Hino, Blue Bird, Micro Bird, Elkhart Yes Yes Yes      Sealy Peterbilt, Isuzu, Blue Bird, Micro Bird, Elkhart Yes Yes No      Texarkana Peterbilt, Hino, Isuzu, Blue Bird, Micro Bird, Elkhart Yes Yes No      Tyler Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes No      Victoria Peterbilt Yes Yes No      Waco Peterbilt, Hino, Isuzu, Blue Bird, Micro Bird, Elkhart Yes Yes No      Wichita Falls Peterbilt Yes Yes No Utah              Ogden International, IC Bus Yes Yes No      Salt Lake City International, IC Bus Yes Yes Yes      Springville International Yes Yes No      St. George International Yes Yes No Virginia              Chester International, Hino Yes Yes No      Richmond International Yes Yes Yes   Leasing and Rental Services. Through certain of our Rush Truck Centers and several stand-alone Rush Truck Leasing locations, we provide a broad line of product selections for lease or rent, including Class 4 through Class 8 commercial vehicles, heavy-duty cranes and refuse vehicles. Our lease and rental fleets are offered to customers on a daily, monthly or long-term basis. Substantially all of our long-term leases also contain a service provision, whereby we agree to service the vehicle through the life of the lease. The following chart reflects our leasing brands by location:   Rush Truck Leasing Location Brand Standalone or in a Rush Truck Center Alabama         Birmingham PacLease In RTC Arizona         Phoenix PacLease Standalone Arkansas         North Little Rock Idealease In RTC     Lowell Idealease Standalone California         Fontana PacLease Standalone     Pico Rivera PacLease Standalone     San Diego PacLease Standalone     Sylmar PacLease In RTC Colorado          Denver PacLease Standalone   8 Table of Contents         Rush Truck Leasing Location Franchise Standalone or in a Rush Truck Center Florida         Orlando PacLease Standalone     Tampa PacLease In RTC     Jacksonville PacLease Standalone Georgia         Augusta Idealease In RTC     Macon Idealease In RTC Idaho         Boise Idealease In RTC     Idaho Falls Idealease In RTC Illinois         Carol Stream Idealease In RTC     Chicago Idealease In RTC     Effingham Idealease In RTC     Huntley Idealease In RTC     Joliet Idealease In RTC     Springfield Idealease In RTC Indiana         Indianapolis Idealease In RTC     Gary Idealease In RTC Kansas         Kansas City Idealease Standalone     Salina Idealease In RTC     Wichita Idealease In RTC Missouri         Joplin Idealease In RTC     St. Louis Idealease In RTC     St. Peters Idealease In RTC     Springfield Idealease In RTC New Mexico         Albuquerque PacLease Standalone Nevada         Las Vegas PacLease Standalone North Carolina         Asheville Idealease Standalone     Charlotte Idealease Standalone Ohio         Cincinnati Idealease Standalone     Cleveland Idealease Standalone     Columbus Idealease Standalone     Dayton Idealease In RTC Oklahoma         Oklahoma City PacLease In RTC Tennessee         Memphis Idealease Standalone     Nashville PacLease In RTC Texas         Austin PacLease Standalone     El Paso PacLease In RTC     Arlington PacLease In RTC     Houston PacLease Standalone     Houston NW PacLease Standalone     Odessa PacLease Standalone     San Antonio PacLease In RTC     Tyler PacLease Standalone Virginia         Richmond Idealease Standalone     Norfolk Idealease Standalone Utah         Salt Lake City Idealease Standalone   9 Table of Contents   In addition to the locations in the above table, Rush Truck Leasing also provides full-service maintenance on customers’ vehicles at several of our customers’ facilities.   Financial and Insurance Products. At our Rush Truck Centers, we offer third‑party financing to assist customers in purchasing new and used commercial vehicles. Additionally, we sell, as agent through our insurance agency, a complete line of property and casualty insurance, including collision and liability insurance on commercial vehicles, cargo insurance and credit life insurance.   Other Businesses. Perfection Equipment offers installation of equipment, equipment repair, parts installation, and paint and body repair at our location in Oklahoma City. Perfection Equipment specializes in up-fitting trucks used by oilfield service providers and other specialized service providers.   Momentum Fuel Technologies manufactures compressed natural gas fuel systems and related component parts for commercial vehicles at its facility in Roanoke, Texas. Effective January 2022, we sold 50% of our equity interest in this entity to a subsidiary of Cummins, Inc. and now we are operating the business as a joint venture with Cummins.   Custom Vehicle Solutions operates at locations in Denton, Texas and Greencastle, Pennsylvania. Custom Vehicle Solutions provides new vehicle pre-delivery inspections, truck modifications, natural gas fuel system installations, body and chassis upfitting and component installation.   The House of Trucks operates at locations in Miami, Florida, Dallas, Texas and Chicago, Illinois. The House of Trucks sells used commercial vehicles, new and used trailers and offers third-party financing and insurance products.   World Wide Tires stores operate in two locations in Texas. World Wide Tires primarily sells tires for use on commercial vehicles.   Industry   See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Industry” for a description of our industry and the markets in which we operate.   Our Business Strategy   Operating Strategy. Our strategy is to operate an integrated nationwide dealership network that provides service solutions to the commercial vehicle industry. Our strategy includes the following key elements:     ● Management by Dealership Units . At each of our dealerships, we operate one or more of the following departments: new commercial vehicle sales, used commercial vehicle sales, financial services, parts, service or a collision center. Our general managers measure and manage the operations of each dealership according to the specific departments operating at that location. We believe that this system enhances the profitability of all aspects of a dealership and increases our overall operating margins. Operating goals for each department at each of our dealerships are established annually and managers are rewarded for performance relative to these goals.     ● One-Stop Centers . We have developed our larger commercial vehicle dealerships as “one-stop centers” that offer an integrated approach to meeting customer needs. We provide service, including collision repairs, parts, new and used commercial vehicles sales, leasing and rental, plus financial services including finance and insurance. We believe that this full-service strategy helps to mitigate cyclical economic fluctuations because our parts, service and collision center operations (referred to herein collectively as “Aftermarket Products and Services”) at our dealerships generally tend to be less volatile than our new and used commercial vehicle sales.     ● Aftermarket Products and Services . Our aftermarket capabilities include a wide range of services and products, including a fleet of mobile service units, mobile technicians who work in our customers’ facilities, technology solutions, including vehicle telematics support, a proprietary line of parts and accessories, and factory-certified service for assembly services for specialized bodies and equipment. We believe that offering a variety of Aftermarket Products and Services at our dealerships and other locations allows us to meet the expanding needs of our customers. We continually strive to leverage our dealership network to offer more products and services to our customers.   10 Table of Contents     ● Branding Program . We employ a branding program at all of our dealerships 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 network.   Growth Strategy. Through our strategic expansion and acquisition initiatives, we have grown to operate a large, multistate, full-service network of commercial vehicle dealerships. We also own a 50% equity interest in RTC Canada that owns and operates 15 International locations in Ontario, Canada. We have an option to purchase the remaining 50% through February 24, 2024. As described below, we intend to continue to grow our business by expanding our product and service offerings through acquisitions in new geographic areas and by opening new locations to enable us to better serve our customers.     ● Expansion of Product and Service Offerings . We intend to continue to expand our product lines within our existing locations by adding product categories and service capabilities that are both complementary to our existing product lines and well suited to our operating model. We will continue to take advantage of technological advances that will provide us with the opportunity to offer vehicle owners more aftermarket options and the ability to maximize the performance of vehicles in their fleets using telematics and other technologies.     ● Expansion Into New Geographic Areas . We plan to continue to expand our dealership network by acquiring existing dealerships or opening new locations in areas where we do not already have locations. We believe the geographic diversity of our Rush Truck Center network has significantly expanded our customer base while reducing the effects of local economic cycles.     ● Open New Rush Truck Centers in Existing Areas of Operation . We continually evaluate opportunities to increase our market presence by adding new Rush Truck Centers within our current franchises’ areas of operation.   Management of Our Dealerships   Rush Truck Centers   Our Rush Truck Centers are responsible for sales of new and used commercial vehicles, as well as related parts and services.   Aftermarket Products and Services . Revenues from Aftermarket Products and Services accounted for approximately $1,793.4 million, or 35.0%, of our total revenues for 2021, and 62.7% of our gross profit. Rush Truck Centers carry a wide variety of commercial vehicle parts in inventory. Certain Rush Truck Centers also feature fully equipped service and collision center facilities, the combination and configuration of which varies by location, capable of handling a broad range of repairs on most commercial vehicles. Each Rush Truck Center with a service department is a warranty service center for the commercial vehicle manufacturers represented at that location, if any, and most are also authorized service centers for other vehicle component manufacturers, including Cummins, Eaton, Caterpillar and Allison. We also have mobile service technicians and technicians who staff our customers’ facilities upon request.   Our service departments perform warranty and non-warranty repairs on commercial vehicles. The cost of warranty work is generally reimbursed by the applicable manufacturer at retail commercial rates. Warranty-related parts and service revenues accounted for approximately $111.8 million, or 2.2%, of our total revenues for 2021. Additionally, we provide a wide array of services, including assembly services for specialized commercial vehicle bodies and commercial vehicle mounted equipment. Our goal is to provide our customers with any service that they need related to their commercial vehicles.   As part of our leasing and rental operations, we also enter into contracts to provide full-service maintenance on certain customers’ vehicles. We had 1,524 vehicles under contract maintenance as of December 31, 2021. The full-service maintenance revenues and retail service revenues are included as Aftermarket Products and Services revenues on our Consolidated Statements of Income.   11 Table of Contents   New Commercial Vehicle Sales .   New commercial vehicle sales represent the largest portion of our revenues, accounting for approximately $2,609.6 million, or 50.9%, of our total revenues in 2021. Of this total, new Class 8 heavy-duty truck sales accounted for approximately $1,661.9 million, or 32.4%, of our total revenues for 2021, and 63.7% of our new commercial vehicle revenues for 2021.   Our Rush Truck Centers that sell new and used Class 8 heavy-duty trucks manufactured by Peterbilt or International may also sell medium-duty and light-duty commercial vehicles. Certain Rush Truck Centers sell medium-duty commercial vehicles manufactured by Peterbilt, Hino, Isuzu, Ford, or International, buses manufactured by Blue Bird, IC Bus or Elkhart and light-duty commercial vehicles manufactured by Ford (see Part I, Item 1, “General – Rush Truck Centers ” for information on which brands we sell at each Rush Truck Center). New medium-duty commercial vehicle sales, excluding new bus sales, accounted for approximately $766.3 million, or 14.9%, of our total revenues for 2021, and 29.4% of our new commercial vehicle revenues for 2021. New bus sales accounted for approximately $90.8 million, or 1.8%, of our total revenues for 2021, and 3.5% of our new commercial vehicle revenues for 2021. New light-duty commercial vehicle sales accounted for approximately $79.4 million, or 1.5%, of our total revenues for 2021, and 3.0% of our new commercial vehicle revenues for 2021.   A significant portion of our new commercial vehicle sales are to customers with large fleets of commercial vehicles. Because of the size and geographic scope of our Rush Truck Center network, our strong relationships with our fleet customers and our ability to manage large quantities of used commercial vehicle trade-ins, we are able to successfully market and sell to fleet customers nationwide. We believe that we have a competitive advantage over many dealerships because we can absorb multi-unit trade-ins often associated with fleet sales and effectively disperse the used commercial vehicles for resale throughout our dealership network. We believe that the broad range of products and services we offer to purchasers of commercial vehicles at the time of purchase and post-purchase results in a high level of customer loyalty.   Used Commercial Vehicle Sales .  Used commercial vehicle sales accounted for approximately $430.4 million, or 8.4%, of our total revenues for 2021. We sell used commercial vehicles at most of our Rush Truck Centers and also at our non-franchised used commercial vehicle facilities. We believe that we are well positioned to market used commercial vehicles due to our ability to recondition them for resale utilizing the service and collision center departments of our Rush Truck Centers and our ability to move used commercial vehicles between our dealerships as customer demand warrants. The majority of our used commercial vehicle inventory consists of commercial vehicles taken as trade-ins from new commercial vehicle customers or retired from our lease and rental fleet, but we also supplement our used commercial vehicle inventory by purchasing used commercial vehicles from third parties for resale, as market conditions warrant.   Vehicle Leasing and Rental .   Vehicle leasing and rental revenues accounted for approximately $247.2 million, or 4.8%, of our total revenues for 2021. At our Rush Truck Leasing locations, we engage in full-service commercial vehicle leasing and rental through PacLease and Idealease. At December 31, 2021, we had 8,914 commercial vehicles in our lease and rental fleet, including cranes. Generally, we sell commercial vehicles that have been retired from our lease and rental fleet through our used commercial vehicles sales operations. Historically, we have realized gains on the sale of used lease and rental fleet inventory.   New and Used Commercial Vehicle Financing and Insurance .  The sale of financial and insurance products accounted for approximately $28.0 million, or 0.5%, of our total revenues for 2021. Finance and insurance revenues have minimal direct costs and therefore, contribute a disproportionate share to our operating profits.   Many of our Rush Truck Centers have personnel responsible for arranging third-party financing for our product offerings. Generally, commercial vehicle finance contracts involve an installment contract, which is secured by the commercial vehicle financed and requires a down payment, with the remaining balance generally financed over a two-year to seven-year period. The majority of these finance contracts are sold to third parties without recourse to us. We provide an allowance for repossession losses and early repayment penalties that we may incur under these finance contracts.   We sell, as agent, a complete line of property and casualty insurance to commercial vehicle owners. Our agency, which operates at locations around the United States outside of our Rush Truck Centers, is licensed to sell commercial vehicle liability, collision and comprehensive, workers’ compensation, cargo, and credit life insurance coverage offered by a number of leading insurance companies. Our renewal rate in 2021 was approximately 82%. We also have licensed insurance agents at several Rush Truck Centers.   12 Table of Contents   Human Capital Management   On December 31, 2021, we employed 7,166 people. Of these employees, less than 0.7% of the workforce was classified as part-time. We do not regularly use independent contractors in our business operations. We strive to provide our employees with the security of long-term employment, competitive compensation and benefits, a consistent work schedule and opportunities to improve their skills and advance within the Company.   Core Values. Our core values define our culture and reflect who we are and the way we interact with our customers, suppliers, co-workers and shareholders. Our core values are productivity, fairness, excellence and positive attitude and are described below.     ● Productivity means constantly striving toward efficiency and success in all interactions and activities while working with a common purpose and sense of urgency.     ● Fairness characterizes our honesty, integrity, truthfulness, dependability and reliability in everything we do.     ● Excellence means doing it better than everyone else does. Excellence is reflected in our first-class facilities, quality products and services, motivated and talented employees, superior results for the customer and consistency throughout our organization.     ● Positive Attitude means approaching every day with excitement and passion for the work and dedication to our customers with positive intensity.   Each of these core values is embodied in our code of conduct, which we call our Rush Driving Principles. Employees are required to attend training on the Rush Driving Principles and certify that they have read and understand such principles on an annual basis. We believe that our core values are the foundation of a strong culture that is a strength for us, and we intend to continue building upon that culture to improve performance across our business.   Employee Recruitment. We strive to attract the best talent from a variety of sources to meet the current and future needs of our business. We have established relationships with multiple trade schools and universities across the country, which we utilize as a source for entry-level talent. Additionally, we believe it is incumbent upon all our managers to continuously monitor their local markets for experienced individuals who might be successful additions to our organization.   Compensation Programs and Employee Benefits. Our compensation programs are designed to provide a compensation package that will attract, retain, motivate and reward employees who must operate in a highly competitive, fast-paced environment. In general, our compensation programs consist of a base salary or hourly rate, commissions for employees in front-line customer facing roles, cash performance bonuses for certain employees, equity incentive awards for senior leaders, vacation leave, sick leave and other forms of paid time off.   We are committed to fair pay. In 2020, the Company established a minimum hourly wage of $15.00 an hour. Our employees receive a base level of monthly or hourly compensation that we believe is commensurate with their expertise, skills, knowledge and experience.   We provide our full-time employees with comprehensive benefit options that allow our employees and their families to live healthier and more secure lives. Some examples of our wide-ranging benefits offered are: Medical insurance, prescription drug benefits, dental insurance, vision insurance, hospital indemnity insurance, accident insurance, critical illness insurance, smoking cessation assistance program, life insurance, disability insurance, health savings accounts and flexible spending accounts.   Training and Development. Our training and development programs are designed to facilitate the development and advancement of talent from within our organization to ensure we continuously fill our ranks with qualified employees for critical positions in the organization. Members of our Learning and Development team collaborate with employees from our various operations teams to identify our strategic training needs and prioritize the development of appropriate training content.   13 Table of Contents   Our Rush Foundational Leader Program is focused on developing key management and leadership skills. The Rush Foundational Leader Program consists of a series of courses ranging from basic management skills to more advanced leadership concepts and skills that are designed for managers throughout our organization. We also have a New Graduate Management Trainee Program that identifies and recruits new talent from universities across the country and provides on-the-job training for them to fill various roles within our dealership network.   To enhance and develop the technical skills of entry-level service and body shop technicians, we established a formal mentorship program lead by experienced service and body shop technicians who serve as mentors to newly hired, entry level service and body shop technicians. We believe that this program increases the technicians’ likelihood of career success. This formal mentorship program also helps us identify top performers and we believe it improves employee performance and retention for participants in the program.   Ethics and Compliance. We are committed to the highest standards of corporate conduct. We maintain an Ethics and Compliance Program that is designed to meet external requirements, as well as our core values and code of conduct embodied in the Rush Driving Principles. A central component of our Ethics and Compliance Program is the continuous training and education of our employees on general ethics and compliance training topics. We also regularly reinforce our commitment to ethics and integrity in communications with our employees.   Employee Engagement and Retention. We conduct an annual comprehensive employee engagement survey designed to measure organizational culture and engagement. The purpose of the survey is to monitor overall employee engagement with the goal of identifying actions that can be taken to continuously improve our employee engagement and lead to increased employee retention. Data collected in each annual employee engagement survey is maintained and used to track our progress against our internal goals.   Management continually monitors employee turnover data, which is supplemented with additional data from exit surveys to assist in determining the reasons for voluntary employee terminations. In 2021, our overall turnover rate was 27.49%, compared to 42.62% in 2020. Our turnover in 2020 was significantly higher than normal because of involuntary reductions in our workforce that were made at the onset of the COVID-19 pandemic. The turnover rate of our service and body shop technicians is also monitored closely by management, as the retention of skilled service and body shop technicians is critical to the success of the Company. Demand for service and body shop technicians across the country is very high, and turnover in this role is also traditionally high for commercial vehicle dealers. In 2021, our turnover rate for service and body shop technicians was 36.67%, compared to 39.24% in 2020.   Health and Safety. Promoting a safe and healthy workplace is our highest priority and is embodied in our core values. We utilize a mixture of leading and lagging indicators to assess the health and safety performance of our operations. Lagging indicators include the OSHA Total Recordable Incident Rate ("TRIR") and the Lost Time (or Lost Workday) Incident Rate ("LTIR") based upon the number of incidents per 100 employees (or per 200,000 work hours). Leading indicators include training completion rates, tracking of local safety committee meeting minutes, and recording of near misses, as well as other proactive actions taken to ensure employee safety. In 2021, we had a TRIR of 3.87, compared to 4.17 in 2020 and a LTIR of 0.71 in 2021, compared to 0.81 in 2020.   Labor Relations. We have entered into collective bargaining agreements covering certain employees in Chicago, Illinois, which will expire on May 10, 2025, Joliet, Illinois, which will expire on May 7, 2022 and Carol Stream, Illinois, which will expire on May 6, 2023. There have been no strikes, work stoppages or slowdowns during the negotiations of the foregoing collective bargaining agreements or at any time in the Company’s history, although no assurances can be given that such actions will not occur. We believe that our relations with the labor unions that represent these employees are generally good.   Sales and Marketing   Our established history of operations in the commercial vehicle business has resulted in a strong customer base that is diverse in terms of geography, industry and scale of operations. Our customers include national and regional truck fleets, corporations, local and state governments and owner-operators. During 2021, no single customer accounted for more than 10% of our sales by dollar volume. We generally promote our products and related services through direct customer contact by our sales personnel and advertising.   14 Table of Contents   Facility Management   Personnel. Each of our facilities is typically managed by a general manager who oversees the operations, personnel and the financial performance of the location, subject to the direction of a regional manager and personnel at our corporate headquarters. Additionally, each full-service Rush Truck Center is typically staffed by department managers, sales representatives and other employees, as appropriate, given the services offered. The sales staff of each Rush Truck Center is compensated on a salary plus commission, or a commission only basis, while department managers receive a combination of salary and performance bonus. We believe that our employees are among the highest paid in the industry, which enables us to attract and retain qualified personnel.   Compliance with Policies and Procedures. Each Rush Truck Center is audited regularly for compliance with corporate policies and procedures. These internal audits objectively measure dealership performance with respect to corporate expectations in the management and administration of sales, commercial vehicle inventory, parts inventory, parts sales, service sales, collision center sales, corporate policy compliance and environmental and safety compliance matters.   Purchasing and Suppliers. Because of our size, we benefit from volume purchases at favorable prices that permit us to achieve a competitive pricing position in the industry. We purchase our commercial vehicle inventory and proprietary parts and accessories directly from the applicable vehicle manufacturer, wholesale distributors, or other sources that provide the most favorable pricing. Most purchasing commitments are negotiated by personnel at our corporate headquarters. Historically, we have been able to negotiate favorable pricing levels and terms, which enable us to offer competitive prices for our products.           Commercial Vehicle Inventory Management. We utilize our management information systems to monitor the inventory level of commercial vehicles at each of our dealerships and transfer new and used commercial vehicle inventory among Rush Truck Centers as needed.   Parts Distribution and Inventory Management. We utilize a parts inventory distribution and management system that allows for the prompt transfer of parts inventory among various Rush Truck Centers. The transfer of inventory reduces delays in delivery, helps maximize inventory turns and assists in controlling problems created by overstock and understock situations. Our network is linked to our major suppliers for purposes of ordering parts and managing parts inventory levels. Automated reordering and communication systems allow us to maintain proper parts inventory levels and permit us to have parts inventory delivered to our locations, or directly to customers, typically within 24 hours of an order being placed.   Recent Acquisitions   On December 13, 2021, we completed the acquisition of certain of the assets of Summit Truck Group, LLC and certain of its subsidiaries and affiliates (collectively, “Summit”), which included full-service commercial vehicle dealerships and Idealease franchises in Arkansas, Kansas, Missouri, Tennessee and Texas. The acquisition included Summit’s dealerships representing International, IC Bus, Idealease, Isuzu and other commercial vehicle manufacturers for a purchase price of approximately $205.3 million, excluding the real property associated with the transaction. We financed approximately $102.0 million of the purchase price under our floor plan and lease and rental truck financing arrangements and the remainder was paid in cash. In addition, we purchased certain real estate owned by Summit for a purchase price of approximately $57.0 million, which was paid in cash.   On November 1, 2021, we acquired certain assets of Illinois Truck Centre, Inc., which included real estate in Elk Grove, Illinois, along with commercial vehicle parts inventory. The transaction was valued at approximately $2.7 million, with the purchase price paid in cash. This location is operating as a full-service commercial vehicle dealership representing Hino and Isuzu.   On October 18, 2021, we acquired certain assets of Commercial Engine Service, Inc. located in Victorville, California, which included commercial vehicle parts inventory and a long-term lease of the facility. The transaction was valued at approximately $4.3 million, with the purchase price paid in cash. This location is operating as a full-service commercial vehicle dealership representing Peterbilt.   15 Table of Contents   Competition   There is, and will continue to be, significant competition both within our current markets and in new markets we may enter. We anticipate that competition between us and other dealership groups will continue to increase in our current markets and on a national level based on the following:     ● the ability to keep customers’ vehicles operational, which is dependent on the accessibility of dealership locations and the ability to attract and retain service technicians;     ● the number of dealership locations representing the manufacturers that we represent and other manufacturers, which impacts manufacturers’ ability to provide more consistent, higher quality service in a timely manner across their dealership networks;     ● price, value, quality and design of the products sold; and     ● our attention to customer service (including technical service).   Our dealerships compete with dealerships representing other manufacturers, including commercial vehicles manufactured by Mack, Freightliner, Kenworth and Volvo. We believe that our dealerships are able to compete with other franchised dealerships, independent service centers, parts wholesalers, commercial vehicle wholesalers, rental service companies and industrial auctioneers in distributing our products and providing service because of the following: the overall quality and reputation of the products we sell; the “Rush” brand name recognition and reputation for quality service; the geographic scope of our dealership network; the breadth of commercial vehicles offered in our dealership network; and our ability to provide comprehensive Aftermarket Products and Services, as well as financing, insurance and other customer services.   Dealership Agreements              Peterbilt. We have entered into nonexclusive dealership agreements with Peterbilt that authorize us to act as a dealer of Peterbilt heavy- and medium-duty trucks. Our Peterbilt areas of responsibility currently encompass areas in the states of Alabama, Arizona, California, Colorado, Florida, Kentucky, Nevada, New Mexico, Oklahoma, Tennessee and Texas. These dealership agreements currently have terms expiring between March 2022 and September 2022. Our dealership agreements with Peterbilt may be terminated by Peterbilt in the event that the aggregate voting power of the estate of W. Marvin Rush, W.M. “Rusty” Rush, other members of the Rush family and certain executives of the Company decreases below 22%. Sales of new Peterbilt commercial vehicles accounted for approximately 31.8% of our total revenues for 2021.           International. We have entered into nonexclusive dealership agreements with Navistar that authorize us to act as a dealer of International heavy- and medium-duty trucks and, in certain markets, IC buses. Our Navistar areas of responsibility currently encompass areas in the states of Arkansas, Georgia, Idaho, Illinois, Indiana, Kansas, Missouri, North Carolina, Ohio, Tennessee, Utah and Virginia. These dealership agreements currently have terms expiring between December 2022 and December 2026. Sales of new International commercial vehicles accounted for approximately 10.3% of our total revenues for 2021.   Other Commercial Vehicle Suppliers. In addition to our dealership agreements with Peterbilt and Navistar, various Rush Truck Centers have entered into dealership agreements with other commercial vehicle manufacturers, including Blue Bird, and Micro Bird, which currently have terms expiring between August 2022 and August 2024 and Ford, Hino and Isuzu, which have perpetual terms. Sales of new non‑Peterbilt and non-International commercial vehicles accounted for approximately 8.8% of our total revenues for 2021.   All of our dealership agreements impose certain operational obligations and financial requirements upon us and the relevant dealerships. In addition, each of our dealership agreements requires the consent of the relevant manufacturer for the sale or transfer of a franchise.   Any termination or nonrenewal of our dealership agreements must follow certain guidelines established by both state and federal legislation designed to protect motor vehicle dealers from arbitrary termination or nonrenewal of franchise agreements. The federal Automobile Dealers Day in Court Act and certain other similar state laws generally provide that the termination or nonrenewal of a motor vehicle 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 interpreted in case law.   16 Table of Contents   Floor Plan Financing            Most of our commercial vehicle inventory 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. We finance the majority of all new commercial vehicle inventory and the loan value of our used commercial vehicle inventory under our Fifth Amended and Restated credit agreement with BMO Harris Bank N.A. (“BMO Harris”) (the “Floor Plan Credit Agreement”). The Floor Plan Credit Agreement includes an aggregate loan commitment of $1.0 billion. Borrowings under the Floor Plan Credit Agreement bear interest at an annual rate equal to (A) the greater of (i) zero and (ii) one month London Interbank Offered Rate (“LIBOR rate”), determined on the last day of the prior month, plus (B) 1.10% and are payable monthly. Loans under the Floor Plan Credit Agreement for the purchase of used inventory are limited to $150.0 million and loans for working capital purposes are limited to $200.0 million. The Floor Plan Credit Agreement expires on September 14, 2026, although BMO Harris has the right to terminate at any time upon 360 days written notice and we may terminate at any time, subject to specified limited exceptions. On December 31, 2021, we had approximately $549.0 million outstanding under the Floor Plan Credit Agreement. The average daily outstanding borrowings under the Floor Plan Credit Agreement were $381.0 million during the twelve months ended December 31, 2021. 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.   Lease and Rental Fleet Financing   On September 14, 2021, we entered into the WF Credit Agreement with the Lenders signatory thereto (the “WF Lenders”) and Wells Fargo Bank, National Association (“WF”), as Administrative Agent (in such capacity, the “WF Agent”). Pursuant to the terms of the WF Credit Agreement, the WF Lenders have agreed to make up to $250.0 million of revolving credit loans for certain of our capital expenditures, including commercial vehicle purchases for our Idealease leasing and rental fleet, and general working capital needs. We expect to use the revolving credit loans available under the WF Credit Agreement primarily for the purpose of purchasing commercial vehicles for our Idealease lease and rental fleet. We may borrow, repay and reborrow amounts pursuant to the WF Credit Agreement from time to time until the maturity date. Borrowings under the WF Credit Agreement bear interest per annum, payable on each interest payment date, as defined in the WF Credit Agreement, at (A) the daily simple secured overnight financing rate (“SOFR”) rate plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio or (B) on or after the term SOFR transition date, the term SOFR rate plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio. The WF Credit Agreement expires on September 14, 2024, although, upon the occurrence and during the continuance of an event of default, the WF Agent has the right to, or upon the request of the required lenders must, terminate the commitments and declare all outstanding principal and interest due and payable. We may terminate the commitments at any time. On December 31, 2021, we had approximately $149.9 million outstanding under the WF Credit Agreement.   On October 1, 2021, the Company entered into that certain Amended and Restated Inventory Financing and Purchase Money Security Agreement with PACCAR Leasing Company (“PLC”), a division of PACCAR Financial Corp. (the “PLC Agreement”). Pursuant to the terms of the PLC Agreement, PLC agreed to make up to $300.0 million of revolving credit loans to finance certain of our capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through our PacLease franchises. We may borrow, repay and reborrow amounts pursuant to the PLC Agreement from time to time until the maturity date, provided, however, that the outstanding principal amount on any date shall not exceed the borrowing base. Advances under the PLC Agreement bear interest per annum, payable on the fifth day of the following month, at our option, at either (A) the prime rate, minus 1.55%, provided that the floating rate of interest is subject to a floor of 0%, or (B) a fixed rate, to be determined between us and PLC in each instance of borrowing at a fixed rate. The PLC Agreement expires on October 1, 2025, although either party has the right to terminate the PLC Agreement at any time upon 180 days written notice. If we terminate the PLC Agreement prior to October 1, 2025, then all payments will be deemed to be voluntary prepayments subject to a potential prepayment premium. On December 31, 2021, we had approximately $185.0 million outstanding under the PLC Agreement.   Product Warranties   The manufacturers we represent provide retail purchasers of their products with a limited warranty against defects in materials and workmanship, excluding certain specified components that are separately warranted by the suppliers of such components. We provide a warranty on our proprietary line of parts and related service and the fuel systems manufactured by Momentum Fuel Technologies. We also provide an extended warranty beyond the manufacturer’s warranty on new Blue Bird school buses that we sell in Texas, as required by state law.   We generally sell used commercial vehicles in “as is” condition without a manufacturer’s warranty, although manufacturers sometimes will provide a limited warranty on their used products if such products have been properly reconditioned prior to resale or if the manufacturer’s warranty on such product is transferable and has not expired. Although we do not provide any warranty on used commercial vehicles, we offer for sale third-party warranties.   17 Table of Contents   Trademarks   The trademarks and trade names of the manufacturers we represent, which are used in connection with our marketing and sales efforts, are subject to limited licenses included in our dealership agreements with each manufacturer. The licenses are for the same periods as our dealership agreements. These trademarks and trade names are widely recognized and are important in the marketing of our products. Each licensor engages in a continuous program of trademark and trade name protection. We hold registered trademarks from the U.S. Patent and Trademark Office for the following names used in this document: “Rush Enterprises,” “Rush Truck Center” and “Momentum Fuel Technologies.”   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 and state governments, corporations and owner-operators. However, Aftermarket Products and Services operations historically have experienced higher sales volumes in the second and third quarters.   Backlog   On December 31, 2021, our backlog of commercial vehicle orders was approximately $3,267.0 million, compared to a backlog of commercial vehicle orders of approximately $1,247.2 million on December 31, 2020. This increase in our backlog is primarily due to production constraints experienced by the manufacturers we represent during 2021. 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 December 31, 2021, and we expect to fill the majority of our backlog orders during 2022.   Environmental Standards and Other Governmental Regulations   We are subject to federal, state and local environmental laws and regulations governing the following: 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 vehicle service, parts and collision center 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 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.   18 Table of Contents   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 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.   The Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”), on behalf of the U.S. Department of Transportation, issued rules associated with reducing greenhouse gas (“GHG”) emissions and improving the fuel efficiency of medium and heavy-duty trucks and buses for current model years through 2027.  In addition, in August 2021, the President of the United States issued an executive order intended to increase fuel efficiency, further reduce GHG emissions and speed up the development of “zero-emission” vehicles. The executive order calls for the EPA and the Secretary of Transportation to adopt new rules and regulations for commercial vehicles starting as early as model year 2027. Similarly, in June 2020, the California Air Resources Board adopted a final rule that is intended to phase out the sale of diesel-powered commercial vehicles over time by requiring a certain percentage of each manufacturer’s commercial vehicles sold within the state to be “zero-emission vehicles,” or “near-zero emission vehicles,” starting in model year 2024. In addition, in July 2020, a group of fifteen U.S. states and the District of Columbia entered into a joint memorandum of understanding that commits each of them to work together to advance and accelerate the market for electric Class 3 through 8 commercial vehicles; one additional state signed in 2021. Four of the states that signed are states where we operate new commercial vehicle dealerships: California, Colorado, North Carolina and Virginia. The signatories to the memorandum all agreed on a goal of ensuring that 100% of new Class 3 through 8 commercial vehicles are zero emission by 2050, with an interim target of 30% zero emission by 2030. Attaining these goals would likely require the adoption of new laws and regulations and we cannot predict at this time whether such laws and regulations would have an adverse impact on 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.   We do not believe that we currently have any material environmental liabilities or that compliance with environmental laws and regulations will 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 dealerships. 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.   19 Table of Contents