RUSH ENTERPRISES INC \TX\ 10-K

Item 5. Market for Registrant ’ s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities   Our common stock trades on The NASDAQ Global Select Market SM under the symbols RUSHA and RUSHB. During 2021, our Board of Directors approved four quarterly cash dividends on all outstanding shares of common stock totaling $0.74 per share. We expect to continue paying cash dividends on a quarterly basis. However, there is no assurance as to the payment of future dividends because the declaration and payment of such dividends is subject to the business judgment of our Board of Directors and will depend on historic and projected earnings, capital requirements, covenant compliance, financial conditions and such other factors as the Board of Directors deems relevant.   The following table sets forth the high and low sales prices for our Class A Common Stock and Class B Common Stock for the fiscal periods indicated and as quoted on The NASDAQ Global Select Market SM and dividends declared.       2021     2020       Dividends Declared     High     Low     Dividends Declared     High     Low   Class A Common Stock                                                                                                   First Quarter   $ .18     $ 51.92     $ 39.21     $ .09     $ 31.22     $ 18.17   Second Quarter     .18       51.98       41.06       .09       31.23       18.85   Third Quarter     .19       48.76       40.95       .09       34.65       26.45   Fourth Quarter     .19       57.66       45.00       .14       43.08       33.37                                                     Class B Common Stock                                                                                                   First Quarter   $ .18     $ 47.10     $ 36.40     $ .09     $ 32.11     $ 14.43   Second Quarter     .18       46.81       36.20       .09       27.30       17.40   Third Quarter     .19       47.40       36.21       .09       29.90       22.09   Fourth Quarter     .19       57.40       45.78       .14       38.38       28.67     As of February 4, 2022, there were approximately 20 record holders of Class A Common Stock and approximately 28 record holders of Class B Common Stock. On October 12, 2020, we effected a three-for-two stock split with respect to both our Class A and Class B Common Stock in the form of a stock dividend. The foregoing stock prices and the following share amounts have been adjusted to give retroactive effect to the stock split for all periods presented.   As of December 31, 2021, we have not sold any securities in the last three years that were not registered under the Securities Act.   A summary of our stock repurchase activity for the fourth quarter of 2021 is as follows:   Period   Total Number of Shares Purchased (1)(2)(3)     Average Price Paid Per Share (1)       Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)     Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (3)   October 1 – October 31, 2021     76,606     $ 49.17   (4)       76,606     $ 72,464,620   November 1 – November 30, 2021     63,273       54.02   (5)       63,273       69,044,644   December 1 – December 31, 2021     92,125       53.48   (6)       92,125       95,070,232   Total     232,004                 232,004             (1) The calculation of the average price paid per share does not give effect to any fees, commissions or other costs associated with the repurchase of such shares. (2) The shares represent Class A and Class B Common Stock repurchased by us. (3) We repurchased shares in 2021 under a stock repurchase program announced on December 8, 2020, which authorized the repurchase of up to $100.0 million of our shares of Class A Common Stock and/or Class B Common Stock. This plan was terminated effective December 1, 2021; we repurchased $31.0 million shares of our Class A and Class B Common Stock under the plan prior to its termination. On November 30, 2021, we announced the approval of a new stock repurchase program, effective December 2, 2021, authorizing management to repurchase, from time to time, up to an aggregate of $100.0 million of our shares of Class A Common Stock and/or Class B Common Stock. (4) Represents 43,331 shares of Class A Common Stock at an average price paid per share of $49.20 and 33,275 shares of Class B Common Stock at an average price paid per share of $49.14. (5) Represents 60,500 shares of Class A Common Stock at an average price paid per share of $54.16 and 2,773 shares of Class B Common Stock at an average price paid per share of $50.97. (6) Represents 52,190 shares of Class A Common Stock at an average price paid per share of $54.09 and 39,935 shares of Class B Common Stock at an average price paid per share of $52.69.   Information regarding our equity compensation plans is incorporated by reference from Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters,” of this annual report on Form 10-K and should be considered an integral part of this Item 5.   29 Table of Contents   Performance Graph   The following graph shows the cumulative 5-Year total return as of December 31, 2021, of a $100 investment in the Company’s common stock made on December 31, 2016 (with dividends reinvested), as compared with similar investments based on (i) the cumulative total returns of the S&P 500 Index (with dividends reinvested) and (ii) the cumulative total returns of a market-weighted Peer Group Index composed of the common stock of PACCAR, Inc., Werner Enterprises, Inc., Penske Automotive Group, Inc. and Lithia Motors, Inc., assuming reinvestment of dividends. The market-weighted Peer Group Index values were calculated from the beginning of the performance period. The historical stock price performance shown below is not necessarily indicative of future stock price performance.       December 31,       2016     2017     2018     2019     2020     2021   Rush Enterprises, Inc.   $ 100.00     $ 156.17     $ 116.01     $ 150.73     $ 190.24     $ 275.47   S&P 500     100.00       121.83       116.49       153.17       181.35       233.41   Peer Group     100.00       115.49       98.40       147.82       179.35       205.05     The foregoing performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act. The stock price performance included in this graph is not necessarily indicative of future stock price performance.   30 Table of Contents   Item 6. Selected Financial Data   The information below was derived from the audited consolidated financial statements included in this report and reports we have previously filed with the SEC. This information should be read together with those consolidated financial statements and the notes to those consolidated financial statements. These historical results are not necessarily indicative of the results to be expected in the future. The selected financial data presented below may not be comparable between periods in all material respects or indicative of our future financial position or results of operations due primarily to acquisitions which occurred during the periods presented. See Note 15 to the Company’s Consolidated Financial Statements for a discussion of such acquisitions. The selected financial data presented below should be read in conjunction with our other financial information included elsewhere herein.       Year Ended December 31,       2021     2020     2019   SUMMARY OF INCOME STATEMENT DATA   (in thousands, except per share amounts)   Revenues                         New and used commercial vehicle sales   $ 3,039,953     $ 2,863,309     $ 3,757,584   Aftermarket products and services sales     1,793,363       1,600,445       1,762,510   Lease and rental     247,234       236,223       247,549   Finance and insurance     27,964       21,949       24,443   Other     17,628       14,014       17,761   Total revenues     5,126,142       4,735,940       5,809,847   Cost of products sold     4,033,844       3,860,473       4,784,219   Gross profit     1,092,298       875,467       1,025,628   Selling, general and administrative     731,340       665,258       753,749   Depreciation and amortization     53,354       57,456       55,372   Gain (loss) on sale of assets     1,432       1,852       (102 ) Operating income     309,036       154,605       216,405   Other income     6,417       6,132       1,925   Interest expense, net     1,770       9,014       28,807   Income before income taxes     313,683       151,723       189,523   Provision (benefit) for income taxes     72,268       36,836       47,940   Net income   $ 241,415     $ 114,887     $ 141,583                             Net income per common share:                         Basic   $ 4.32     $ 2.09     $ 2.57   Diluted   $ 4.17     $ 2.04     $ 2.51                             Cash dividends declared per share   $ 0.74     $ 0.41     $ 0.34                             Weighted average shares outstanding:                         Basic     55,892       54,866       54,988   Diluted     57,878       56,242       56,356     31 Table of Contents         Year Ended December 31,       2021     2020     2019   OPERATING DATA                         Unit vehicle sales −                         New vehicles     23,259       23,113       31,675   Used vehicles     7,527       7,400       7,741   Total unit vehicles sales     30,786       30,513       39,416   Commercial vehicle lease and rental units     8,914       8,104       8,506         Year Ended December 31,       2021     2020     2019       (in thousands)   BALANCE SHEET DATA                         Working capital   $ 320,950     $ 330,932     $ 205,162   Inventories     1,020,136       858,291       1,326,080   Total assets     3,119,977       2,985,393       3,407,329                             Floor plan notes payable     630,731       511,786       996,336   Long-term debt, including current portion     334,926       529,654       627,678   Finance lease obligations, including current portion     116,530       117,113       92,370   Total shareholders’ equity     1,466,749       1,268,037       1,159,493     Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations   Overview   We are a full-service, integrated retailer of commercial vehicles and related services. We operate one segment - the Truck Segment. The Truck Segment operates a network of commercial vehicle dealerships primarily under the name “Rush Truck Centers.” Most Rush Truck Centers are a franchised dealer for 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. We offer an integrated approach to meeting customer needs by providing service, parts and collision repair (collectively, “Aftermarket Products and Services”) in addition to new and used commercial vehicle sales and leasing, insurance and financial services, vehicle upfitting, CNG fuel systems and vehicle telematics products.    Our goal is to continue to serve as the premier service solutions provider to the end-users of commercial vehicles. Our strategic efforts to achieve this goal include continuously expanding our portfolio of Aftermarket Products and Services, broadening the diversity of our commercial vehicle product offerings and extending our network of Rush Truck Centers. Our commitment to provide innovative solutions to service our customers’ needs continues to drive our strong Aftermarket Products and Services revenues.   Our Aftermarket Products and Services include a wide range of capabilities and products such as providing parts, service and collision repairs at certain of our Rush Truck Centers, a fleet of mobile service units, technicians who work in our customers’ facilities, a proprietary line of commercial vehicle parts and accessories, vehicle upfitting, a broad range of diagnostic and analysis capabilities, a suite of telematics products and assembly services for specialized bodies and equipment. Aftermarket Products and Services accounted for 62.7% of our total gross profits in 2021.   Stock Split   On September 15, 2020, our Board of Directors declared a 3-for-2 stock split of our Class A common stock and Class B common stock, which was effected in the form of a stock dividend. On October 12, 2020, we distributed one additional share of stock for every two shares of Class A common stock, par value $0.01 per share, and Class B common stock, par value $0.01 per share, held by shareholders of record as of September 28, 2020. All share and per share data in this Form 10-K have been adjusted and restated to reflect the stock split as if it occurred on the first day of the earliest period presented.   32 Table of Contents   The   COVID-19   Pandemic   and   Its   Impact on Our Business   Our dealership network has remained operational since the beginning of the COVID-19 pandemic. While the COVID-19 pandemic is not over, business conditions have improved significantly since the second quarter of 2020. However, our industry continues to be impacted by supply chain issues generally believed to be attributable to the COVID-19 pandemic that are negatively affecting new commercial vehicle production and the availability of aftermarket parts.   Commercial Vehicle Sales   All of the commercial vehicle manufacturers that we represent resumed operations following any COVID-19 related shutdowns in 2020. However, supply chain delays related to commercial vehicle components have forced some of the manufacturers we represent to temporarily cease production at times and will limit the commercial vehicle industry’s ability to meet demand for commercial vehicles throughout 2022. The decrease in the supply of new commercial vehicles has resulted in increased demand for used commercial vehicles.   Aftermarket Products and Services   With respect to our Aftermarket Products and Services departments, with some minor exceptions, our parts supply chain remained relatively uninterrupted during 2021 and our parts sales are back to pre-pandemic levels. We believe that the investments we made over the years with respect to our aftermarket strategic initiatives enabled us to mitigate some of the impact of the COVID-19 pandemic on our Aftermarket Products and Service business. However, with respect to parts availability going forward, we are dependent on our manufacturers and future production levels of certain parts and components are uncertain at this time. Although the supply chain disruptions are only impacting a small percentage of the parts we sell, any delay we experience in receiving a part has a corresponding delay in our completion of services on the commercial vehicle for which the part was ordered.   Rental and Leasing Operations   With respect to our rental and leasing operations, in 2020, we allowed certain credit-worthy customers serving industries that were dramatically impacted by the COVID-19 pandemic to skip up to three months of lease payments and either extend the lease term by three months or increase the remaining payments to keep the same lease term.  These customers have resumed payments. Revenues from our rental and leasing operations are back to pre-pandemic levels.   Liquidity   As of December 31, 2021, we had $148.1 million in cash. For further discussion of our liquidity, see the Liquidity and Capital Resources discussion set forth herein.   Summary of 2021   Our results of operations for the year ended December 31, 2021 are summarized below as follows:     ● Our gross revenues totaled $5,126.1 million, an 8.2% increase from gross revenues of $4,735.9 million in 2020.     ● Gross profit increased $216.8 million, or 24.8%, compared to 2020. Gross profit as a percentage of sales increased to 21.3% in 2021, from 18.5% in 2020.     ● Our new Class 8 heavy-duty unit sales, which accounted for 4.9% of the total U.S. market, increased 3.6%, compared to 2020.     ● Our new Class 4-7 medium-duty unit sales, including buses, which accounted for 4.2% of the total U.S. market, decreased 7.3%, compared to 2020.     ● New light-duty truck unit sales increased 52.1% in 2021, compared to 2020.   33 Table of Contents     ● Used truck unit sales increased 1.7%, compared to 2020, however, used truck revenue increased 47.7%, compared to 2020 due to a sharp increase in used truck values.     ● Aftermarket Products and Services revenues increased $192.9 million, or 12.1%, to $1,793.4 million, compared to $1,600.4 million in 2020.     ● Lease and rental revenues increased $11.0 million, or 4.7%, to $247.2 million, compared to 2020.     ● Selling, General and Administrative (“SG&A”) expenses increased $66.1 million, or 9.9%, to 731.3 million, compared to $665.3 million in 2020.     ● In October 2021, we acquired an independent parts and service facility in Victorville, California that has been converted into a full service Peterbilt dealership.     ● In November 2021, we acquired a full-service Hino and Isuzu dealership in Elk Grove, Illinois.     ● In December 2021, we acquired certain assets of The Summit Truck Group (“Summit”). The acquisition 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 certain other commercial vehicle manufacturers.   2022 Outlook   According to A.C.T. Research Co., LLC (“A.C.T. Research”), a commercial vehicle industry data and forecasting service provider, new U. S. Class 8 truck retail sales are estimated to total 247,500 truck units in 2022, an 8.9% increase compared to 227,374 units sold in 2021. While demand for new commercial vehicles is currently strong, we believe that component supply chain issues will continue to delay production. In addition, we have been informed by the Class 8 manufacturers we represent that production of commercial vehicles in 2022 will be allocated to all of their dealers based on historical purchases. We believe that our allocation of commercial vehicles in 2022 will not be less than the number of commercial vehicles we sold in 2021.   We expect our market share of new Class 8 truck sales to range between 5.5% and 5.9% in 2022. This market share percentage would result in the sale of approximately 13,500 to 14,500 of new Class 8 trucks in 2022, based on A.C.T. Research’s current U.S. retail sales estimate of 247,500 units. This projected increase in market share in 2022, compared to 2021, is partially related to the December 2021 Summit acquisition.   According to A.C.T. Research, new U. S. Class 4 through 7 commercial vehicle retail sales are estimated to total 263,700 units in 2022, a 5.6% increase compared to 249,753 units sold in 2021. We expect our market share of new Class 4 through 7 commercial vehicle sales to range between 4.6% and 4.9% in 2022. This market share percentage would result in the sale of approximately 12,000 to 13,000 of new Class 4 through 7 commercial vehicles in 2022, based on A.C.T. Research’s current U.S. retail sales estimates of 263,700 units. This projected increase in market share in 2022, compared to 2021, is partially related to the December 2021 Summit acquisition.   We expect to sell approximately 1,700 light-duty vehicles and approximately 7,100 to 7,400 used commercial vehicles in 2022.   We expect lease and rental revenue to increase 25% to 30% during 2022, compared to 2021. This projected increase in lease and rental revenue in 2022, compared to 2021, is primarily related to the acquisition of the Summit Idealease locations in December 2021.   We continue to make progress on our strategic initiatives to increase our Aftermarket Products and Services revenues.  We believe our Aftermarket Products and Services revenues will increase 15% to 20% in 2022, compared to 2021. This projected increase in Aftermarket Products and Services revenues in 2022, compared to 2021, is related to price increases by the manufacturers of parts we sell and the December 2021 Summit acquisition.   34 Table of Contents   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 our Aftermarket Products and 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. Our commercial vehicle dealerships achieved a 129.8% absorption ratio for the year ended December 31, 2021 and 118.7% absorption ratio for the year ended December 31, 2020.   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 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 net realizable value. Cost is determined by specific identification of new and used commercial vehicle inventory and by the first-in, first-out method for tires, 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.   Purchase Price Allocation, Intangible Assets and Goodwill   The purchase price allocation for business combinations and asset acquisitions requires the use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. We determine whether substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the single asset or group of assets, as applicable, is not a business. If it is not met, we determine whether the single asset or group of assets, as applicable, meets the definition of a business.   In connection with our business combinations, we recorded certain intangible assets, including franchise rights. We periodically review the estimated useful lives and fair values of our identifiable intangible assets, taking into consideration any events or circumstances that might result in a diminished fair value or revised useful life.   The excess purchase price over the fair value of assets acquired is recorded as goodwill. We test goodwill for impairment annually in the fourth quarter, or whenever events or changes in circumstances indicate an impairment may have occurred. Because we operate a single reporting unit, the Truck Segment, the impairment test is performed at that level by comparing the estimated fair value of the reporting unit to the carrying value of the reporting unit. We estimate the fair value of the reporting unit using a "step one" analysis using a fair-value-based approach based on a discounted cash flow analysis of projected future results to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Determining the fair value of goodwill is subjective in nature and often involves the use of estimates and assumptions including, without limitation, use of estimates of future prices and volumes for our products, capital needs, economic trends and other factors which are inherently difficult to forecast. If actual results, or the plans and estimates used in future impairment analyses are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges in a future period. The annual impairment test was performed in the fourth quarter of 2021. No impairment of goodwill was identified during 2021.   35 Table of Contents   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’s 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 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 would generally 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.   Revenue Recognition   We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.  To determine revenue recognition for arrangements that we determine are within the scope of ASU 2014-09, “ Revenue from Contracts with Customers ( “ Topic 606 ” ) , we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation.  We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.  At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations. We then assess whether each promised good or service is distinct and recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.     36 Table of Contents   Leases   We lease commercial vehicles and real estate under finance and operating leases. We determine whether an arrangement is a lease at its inception. For leases with terms greater than twelve months, we record a lease asset and liability at the present value of lease payments over the term. Many of our leases include renewal options and termination options that are factored into our determination of lease payments when appropriate.   When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.   We lease commercial vehicles that we own to customers. Lease and rental revenue is recognized over the period of the related lease or rental agreement. Variable rental revenue is recognized when it is earned.   Allowance for Credit Losses   All trade receivables are reported on the consolidated balance sheet at their cost basis adjusted for any write-offs and net of allowances for credit losses. We maintain allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of our receivables after considering current market conditions and estimates for supportable forecasts, when appropriate. The estimate is a result of our ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in each of our receivable portfolios (commercial vehicle receivables, manufacturers’ receivables, parts and service receivables, leasing receivables and other trade receivables). For trade receivables, we use the probability of default and our historical loss experience rates by portfolio and apply them to a related aging analysis while also considering customer and economic risk where appropriate. Determination of the proper amount of allowances by portfolio requires us to exercise our judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowances take into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, collection experience, current economic conditions, estimates for supportable forecasts (when appropriate) and credit risk characteristics.   Results of Operations   The following discussion and analysis includes our historical results of operations for 2021, 2020 and 2019. The following table sets forth for the years indicated certain financial data as a percentage of total revenues:       Year Ended December 31,       2021     2020     2019   New and used commercial vehicle sales     59.3 %     60.5 %     64.7 % Aftermarket Products and Services sales     35.0       33.8       30.3   Lease and rental     4.8       5.0       4.3   Finance and insurance     0.6       0.4       0.4   Other     0.3       0.3       0.3   Total revenues     100.0       100.0       100.0   Cost of products sold     78.7       81.5       82.3   Gross profit     21.3       18.5       17.7   Selling, general and administrative     14.3       14.0       13.0   Depreciation and amortization     1.0       1.2       1.0   Gain (loss) on sale of assets     0.0       0.0       0.0   Operating income     6.0       3.3       3.7   Other income     0.1       0.1       0.0   Interest expense, net     0.0       0.2       0.5   Income from continuing operations before income taxes     6.1       3.2       3.2   Provision (benefit) for income taxes     1.4       0.8       0.8   Net income     4.7 %     2.4 %     2.4 %   37 Table of Contents   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 for the years indicated (revenue in millions):                               % Change       2021     2020     2019     2021 vs 2020     2020 vs 2019   Vehicle unit sales:                                         New heavy-duty vehicles     11,052       10,670       14,986       3.6 %     -28.8 % New medium-duty vehicles     10,485       11,311       14,470       -7.3 %     -21.8 % New light-duty vehicles     1,722       1,132       2,219       52.1 %     -49.0 % Total new vehicle unit sales     23,259       23,113       31,675       0.6 %     -27.0 %                                           Used vehicles sales     7,527       7,400       7,741       1.7 %     -4.4 %                                           Vehicle revenue:                                         New heavy-duty vehicles   $ 1,661.9     $ 1,587.9     $ 2,192.3       4.7 %     -27.6 % New medium-duty vehicles     857.1       919.7       1,124.0       -6.8 %     -18.2 % New light-duty vehicles     79.4       50.1       90.6       58.5 %     -44.7 % Total new vehicle revenue   $ 2,598.4     $ 2,557.7     $ 3,406.9       1.6 %     -24.9 %                                           Used vehicle revenue   $ 430.4     $ 291.5     $ 330.3       47.7 %     -11.7 %                                           Other vehicle revenue:(1)   $ 11.2     $ 14.1     $ 20.4       -20.6 %     -30.9 %                                           Dealership absorption ratio:     129.8 %     118.7 %     120.2 %     9.4 %     -1.2 %   (1) Includes sales of truck bodies, trailers and other new equipment.     The following table sets forth for the periods indicated the percent of gross profit by revenue source:       2021     2020     2019   Gross Profit:                         New and used commercial vehicle sales     27.7 %     25.3 %     27.0 % Aftermarket products and services sales     62.7       66.7       64.9   Lease and rental     5.4       3.9       4.0   Finance and insurance     2.6       2.5       2.4   Other     1.6       1.6       1.7   Total gross profit     100.0 %     100.0 %     100.0 %   Industry   We operate in the commercial vehicle market. There has historically been a high correlation between new product sales in the commercial vehicle market and the rate of change in U.S. industrial production and the U.S. gross domestic product.   Heavy-Duty Truck Market   The U.S. retail heavy-duty truck market is affected by a number of factors, including general economic conditions, fuel prices, other methods of transportation, environmental and other government regulation, interest rate fluctuations and customer business cycles. According to data published by A.C.T. Research, total U.S. retail sales of new Class 8 trucks have ranged from a low of approximately 110,000 in 2010 to a high of approximately 281,440 in 2019. Class 8 trucks are defined by the American Automobile Association as trucks with a minimum gross vehicle weight rating above 33,000 pounds.   38 Table of Contents   Typically, Class 8 trucks are assembled by manufacturers utilizing certain components that may be manufactured by other companies, including engines, transmissions, axles, wheels and other components. As commercial vehicles and certain commercial vehicle components have become increasingly complex, the ability to provide service for commercial vehicles has become an increasingly competitive factor in the industry. The ability to provide such service requires a significant capital investment in diagnostic and other equipment, parts inventory and highly trained service personnel. EPA and Department of Transportation regulatory guidelines for service processes, including collision center, paint work and waste disposal, require sophisticated equipment to ensure compliance with environmental and safety standards. Differentiation between commercial vehicle dealers has become less dependent on price competition and is increasingly based on a dealer’s ability to offer a wide variety of services to their clients in a timely manner to minimize vehicle downtime. Such services include the following: efficient, conveniently located and easily accessible commercial vehicle service centers with an adequate supply of replacement parts; financing for commercial vehicle purchases; leasing and rental programs; and the ability to accept multiple unit trade-ins related to large fleet purchases. We believe our one-stop center concept and the size and geographic diversity of our dealership network gives us a competitive advantage in providing these services.   A.C.T. Research currently estimates approximately 247,500 new Class 8 trucks will be sold in the United States in 2022, compared to approximately 227,374 new Class 8 trucks sold in 2021. A.C.T. Research currently forecasts sales of new Class 8 trucks in the U.S. to be approximately 287,000 in 2023.   Medium-Duty Truck Market   Many of our Rush Truck Centers sell medium-duty commercial vehicles manufactured by Peterbilt, International, Hino, Ford or Isuzu, and provide parts and service for medium-duty commercial vehicles. Medium-duty commercial vehicles are principally used in short‑haul, local markets as delivery vehicles; they typically operate locally and generally do not leave their service areas overnight. We also sell light-duty vehicles (Class 3 and under) at several of our Ford dealerships.   A.C.T. Research currently forecasts sales of new Class 4 through 7 commercial vehicles in the U.S. to be approximately 263,700 units in 2022, compared to 249,753 units in 2021. A.C.T. Research currently forecasts sales of new Class 4 through 7 commercial vehicles in the U.S. to be approximately 279,100 in 2023.   Year Ended December   31, 2021 Compared to Year Ended December   31, 2020   Revenues   Total revenues increased $390.2 million, or 8.2%, in 2021, compared to 2020.   Our Aftermarket Products and Services revenues increased $192.9 million, or 12.1%, in 2021, compared to 2020. This increase was primarily due to the continued recovery of the national economy and strong demand for aftermarket parts and services.   Our revenues from sales of new and used commercial vehicles increased $176.6 million, or 6.2%, in 2021, compared to 2020. This increase was also primarily due to the continued recovery of the national economy, which has led to strong freight rates throughout the country and strong demand for commercial vehicles and aftermarket parts and services.   We sold 11,052 new heavy-duty trucks in 2021, a 3.6% increase compared to 10,670 new heavy-duty trucks in 2020. Our share of the new U.S. Class 8 commercial vehicle sales market decreased to approximately 4.9% in 2021, from 5.5% in 2020. Our new Class 8 truck sales were negatively impacted by commercial vehicle production constraints that affected the manufacturers we represent.   We sold 10,485 new medium-duty commercial vehicles, including 959 buses, in 2021, a 7.3% decrease compared to 11,311 new medium-duty commercial vehicles, including 1,097 buses, in 2020. In 2021, we achieved a 4.2% share of the Class 4 through 7 commercial vehicle market in the U.S., compared to 4.9% in 2020. Our new Class 4 through 7 commercial vehicle sales were negatively impacted by new commercial vehicle production constraints that affected the manufacturers we represent.   We sold 1,722 new light-duty vehicles in 2021, a 52.1% increase compared to 1,132 new light-duty vehicles in 2020. Our light-duty vehicle sales benefited from the increased demand for light-duty vehicles in the U.S.   We sold 7,527 used commercial vehicles in 2021, a 1.7% increase compared to 7,400 used commercial vehicles in 2020. Demand for used commercial vehicles remained strong in 2021, driven in large part by production constraints for new Class 8 trucks. However, the number of used commercial vehicles we will be able to sell depends on our ability to acquire quality used commercial vehicle inventory. We believe used truck demand and values will decrease when new truck production increases to a level adequate to meet customer demand; however, we believe demand for used trucks will remain strong throughout 2022.   39 Table of Contents   Commercial vehicle lease and rental revenues increased $11.0 million, or 4.7%, in 2021, compared to 2020. The increase is primarily due to increased rental fleet utilization and strong demand for vehicles to lease, which is partly due to the limited supply of new commercial vehicles.   Finance and insurance revenues increased $6.0 million, or 27.4%, in 2021, compared to 2020. Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of our operating profits. We expect finance and insurance revenues to fluctuate proportionately with our new and used commercial vehicle sales in 2022.   Other revenues increased $3.6 million, or 25.8% in 2021, compared to 2020. Other revenues consist primarily of document fees related to commercial vehicle sales.   Gross Profit   Gross profit increased $216.8 million, or 24.8%, in 2021, compared to 2020. Gross profit as a percentage of sales increased to 21.3% in 2021, from 18.5% in 2020. This increase in gross profit as a percentage of sales is a result of increased gross margins across our operations.   Gross margins from our Aftermarket Products and Services operations increased to 38.1% in 2021, from 36.5% in 2020. This increase is primarily related to the increase in parts rebates from parts suppliers and increases in parts list pricing by the manufacturers we represent, which lead to increased margins on parts sales with respect to inventory acquired prior to the manufacturers’ price increases, compared to 2020. Gross profit for Aftermarket Products and Services increased to $684.1 million in 2021, from $583.9 million in 2020. Historically, parts operations’ gross margins range from 28% to 30% and service and collision center operations range from 66% to 68%. Gross profits from parts sales represented 61.4% of total gross profit for Aftermarket Products and Services operations in 2021 and 59.4% in 2020. Service and collision center operations represented 38.6% of total gross profit for Aftermarket Products and Services operations in 2021 and 40.6% 2020. We expect blended gross margins on Aftermarket Products and Services operations to range from 37.5% to 38.5% in 2022.   Gross margins on new Class 8 truck sales increased to 9.0% in 2021, from 8.2% in 2020. This increase is primarily due to strong demand for Class 8 trucks and the mix of purchasers during 2021. In 2022, we expect overall gross margins from new heavy-duty truck sales of approximately 8.0% to 9.0%.   Gross margins on new Class 4 through 7 commercial vehicle sales increased to 7.8% in 2021, from 6.3% in 2020. This increase is primarily due to the mix of purchasers during 2021. For 2022, we expect overall gross margins from new medium-duty commercial vehicle sales of approximately 7.0% to 8.0%, but this will largely depend upon the mix of purchasers and types of vehicles sold.   Gross margins on used commercial vehicle sales increased to 18.7% in 2021, from 9.9% in 2020. This increase in margins in 2021 was primarily due to the increase in used truck values due to strong demand for used commercial vehicles. The lower margins that we recognized in 2020 were due to weak demand for used trucks in early 2020 caused by the beginning of the COVID-19 pandemic and the write-down of used truck inventory values to account for extremely weak market conditions at that time. We expect margins on used commercial vehicles to gradually decrease throughout 2022 and reach their historical range between 8.0% and 10.0% by the end of 2022.   Gross margins from commercial vehicle lease and rental sales increased to 23.9% in 2021, from 14.3% in 2020. This increase is primarily related to increased rental fleet utilization and changes to the way we finance commercial vehicles for our lease and rental fleet. In the third quarter of 2021, we entered into the WF Credit Agreement that allows us to finance a portion of our Idealease lease and rental fleet through a general borrowing facility. In October of 2021, we entered into the PLC Agreement with PLC in the amount of $300.0 million to be used in connection with the acquisition of PacLease lease and rental fleet vehicles. The interest associated with the WF Credit Agreement and the PLC Agreement is recorded in interest expense on the Consolidated Statement of Income and was $2.4 million during 2021. Prior to the WF Credit Agreement and the PLC Agreement, interest expense associated with our lease and rental fleet purchases was recorded in cost of sales because each borrowing was directly related to each lease and rental vehicle purchased. This change in the structure of financing of our lease and rental fleet results in increased gross margins from our commercial vehicle lease and rental sales. We expect gross margins from lease and rental sales of approximately 31.0% to 33.0% during 2022. 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 approximates fair value at the expiration of the lease term. This policy results in us 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.   40 Table of Contents   Finance and insurance revenues and other revenues, as described above, have limited direct costs and, therefore, contribute a disproportionate share of gross profit.   Selling, General and Administrative Expenses   SG&A expenses increased $66.1 million, or 9.9%, in 2021, compared to 2020. This increase resulted primarily from increased personnel expense and increased selling expense, compared to 2020. SG&A expenses as a percentage of total revenues increased to 14.3% in 2021, from 14.0% in 2020. Annual SG&A expenses as a percentage of total revenues have ranged from approximately 12.4% to 14.3% over the last five years. 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 the higher end of this range. For 2022, we expect SG&A expenses as a percentage of total revenues to range from 13.0% to 14.0%, due to the increase in revenues from sales of new and used commercial vehicle and Aftermarket Products and Services. For 2022, we expect 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 decreased $4.1 million, or 7.1%, in 2021, compared to 2020.   Interest Expense, Net   Net interest expense decreased $7.2 million, or 80.4%, in 2021, compared to 2020. This decrease was primarily attributable to the decrease in floorplan liability due to lower commercial vehicle inventory levels, the product mix of our commercial vehicle inventory and reduced real estate debt. During 2021, a higher portion of our vehicle inventory was from commercial vehicle manufacturers that were offering more favorable floorplan terms than in 2020. We expect net interest expense in 2022 to increase due to interest related to lease and rental borrowings, but the amount of the increase will depend on inventory levels, interest rate fluctuations and the amount of cash available to make prepayments on our floor plan arrangements.   Income before Income Taxes   Income before income taxes increased $162.0 million, or 106.7%, in 2021, compared to 2020, as a result of the factors described above.   Income Taxes   Income tax expense increased $35.4 million, or 96.2%, in 2021, compared to 2020, as a result of the factors described above. We provided for taxes at a 23.0% effective rate in 2021, compared to an effective rate of 24.3% in 2020. We expect our effective tax rate to be approximately 23.0% to 24.0% of pretax income in 2022.   Year Ended December   31, 2020 Compared to Year Ended December   31, 2019   For a discussion of information on the year ended December 31, 2020, refer to Part II Item 7 in the 2020 Annual Report on Form 10-K. https://www.sec.gov/ix?doc=/Archives/edgar/data/1012019/000143774921003966/rusha20201231_10k.htm   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 December 31, 2021, we had working capital of approximately $321.0 million, including $148.1 million in cash, available to fund our operations. 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 Floor Plan Credit Agreement.   41 Table of Contents   We continually evaluate our liquidity and capital resources based upon: (i) our cash and cash equivalents on hand; (ii) the funds that we expect to generate through future operations; (iii) current and expected borrowing availability under our secured line of credit, working capital lines of credit available under certain of our credit agreements and our Floor Plan Credit Agreement; and (iv) the potential impact of our capital allocation strategy and any contemplated or pending future transactions, including, but not limited to, acquisitions, equity repurchases, dividends, or other capital expenditures. We believe we will have sufficient liquidity to meet our debt service and working capital requirements, commitments and contingencies, debt repayments, acquisitions, capital expenditures and any operating requirements for at least the next twelve months.   We have a secured line of credit that provides for a maximum borrowing of $15.0 million. There were no advances outstanding under this secured line of credit at December 31, 2021, however, $14.3 million was pledged to secure various letters of credit related to self-insurance products, leaving $0.7 million available for future borrowings as of December 31, 2021.   Our long-term debt, floor plan financing agreements and the WF Credit Agreement require us to satisfy various financial ratios such as the leverage ratio, the asset coverage ratio and the fixed charge coverage ratio. As of December 31, 2021, we were in compliance with all debt covenants related to debt secured by lease and rental units, our floor plan credit agreements and the WF Credit Agreement. We do not anticipate any breach of the covenants in the foreseeable future.   We expect to purchase or lease commercial vehicles worth approximately $150.0 million to $170.0 million for our leasing operations during 2022, depending on customer demand, most of which will be financed. We also expect to make capital expenditures for the purchase of recurring items such as computers, shop tools and equipment and Company vehicles of approximately $30.0 million to $35.0 million during 2022.   During the fourth quarter of 2021, we paid a cash dividend of $10.6 million. Additionally, on February 15, 2022, our Board of Directors declared a cash dividend of $0.19 per share of Class A and Class B Common Stock, to be paid on March 15, 2022, to all shareholders of record as of February 28, 2022. The total dividend disbursement is estimated to be approximately $10.6 million. We expect to continue paying cash dividends on a quarterly basis. However, there is no assurance as to future dividends because the declaration and payment of such dividends is subject to the business judgment of our Board of Directors and will depend on historic and projected earnings, capital requirements, covenant compliance and financial conditions and such other factors as our Board of Directors deem relevant.   On November 30, 2021, we announced that our Board of Directors approved a new stock repurchase program authorizing management to repurchase, from time to time, up to an aggregate of $100.0 million of our shares of Class A Common Stock and/or Class B Common Stock. In connection with the adoption of the new stock repurchase plan, we terminated the prior stock repurchase plan, which was scheduled to expire on December 31, 2021. 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 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 our dealership agreements with Peterbilt. As of December 31, 2021, we had repurchased $4.9 million of our shares of common stock under the current stock repurchase program. The current stock repurchase program expires on December 31, 2022, and may be suspended or discontinued at any time.   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.   We have no other material commitments for capital expenditures as of December 31, 2021. However, we will continue to purchase vehicles for our lease and rental operations and authorize capital expenditures for the improvement or expansion of our existing dealership facilities and construction or purchase of new facilities based on market opportunities.   Cash Flows   Cash and cash equivalents decreased by $163.9 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, and increased by $130.4 million during the year ended December 31, 2020, compared to the year ended December 31, 2019. The major components of these changes are discussed below.   42 Table of Contents   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 2021, operating activities resulted in net cash provided by operations of $422.3 million. Net cash provided by operating activities primarily consisted of $241.4 million in net income, as well as non-cash adjustments related to depreciation and amortization of $169.5 million, deferred income tax of $13.7 million and stock-based compensation of $22.2 million. Cash used in operating activities included an aggregate of $17.4 million net change in operating assets and liabilities. Included in the net change in operating assets and liabilities were cash inflows of $32.3 million from a decrease in accounts receivable, $12.1 million from the increase in accounts payable and $3.0 million from the increase in customer deposits, which were offset by cash outflows of $33.6 million from an increase in inventory and $31.0 million from the decrease in accrued liabilities. The majority of commercial vehicle inventory is financed through our floor plan credit agreements.   During 2020, operating activities resulted in net cash provided by operations of $763.0 million. Net cash provided by operating activities primarily consisted of $114.9 million in net income, as well as non-cash adjustments related to depreciation and amortization of $177.3 million, deferred income tax of $37.9 million and stock-based compensation of $19.4 million. Cash used in operating activities included an aggregate of $495.9 million net change in operating assets and liabilities. Included in the net change in operating assets and liabilities were cash inflows of $11.2 million from a decrease in accounts receivable, $536.7 million from a decrease in inventory, $5.8 million from the decrease in other current assets, $31.5 million from the increase in customer deposits and $49.0 million from the increase in accrued liabilities, which were offset by cash outflows of $23.3 million from the decreases in accounts payable and $115.0 million from the net payments on floor plan (trade).   Cash Flows from Investing Activities   During 2021, cash used in investing activities totaled $432.9 million. Cash flows used in investing activities consist primarily of cash used for capital expenditures and business acquisitions. Cash used for business acquisitions was $269.3 million during the year ended December 31, 2021. See Note 15 of the Notes to Consolidated Financial Statements for a detailed discussion of the business acquisitions. Capital expenditures totaled $167.2 million during 2021 and consisted primarily of purchases of property and equipment, improvements to our existing dealership facilities and $164.6 million for purchases of rental and lease vehicles for the rental and leasing operations.   During 2020, cash used in investing activities totaled $127.5 million. Cash flows used in investing activities consist primarily of cash used for capital expenditures. Capital expenditures totaled $136.2 million during 2020 and consisted primarily of purchases of property and equipment, improvements to our existing dealership facilities and $93.0 million for purchases of rental and lease vehicles for the rental and leasing operations, which were directly offset by borrowings of long-term debt.   Cash Flows from Financing Activities   Cash flows used in financing activities include borrowings and repayments of long-term debt and net payments of floor plan notes payable. During 2021, our financing activities resulted in net cash used in financing of $153.3 million. The cash outflows consisted primarily of $468.8 million used for principal repayments of long-term debt and capital lease obligations and $33.6 million used to purchase 329,451 shares of Rush Class A common stock and 418,615 shares of Rush Class B common stock during 2021. Additionally, during 2021, we paid cash dividends of $41.1 million. These cash outflows were partially offset by $118.9 million from net draws on floor plan notes payable (non-trade), borrowings of $260.3 million of long-term debt related to the lease and rental fleet and $10.9 million from the issuance of shares related to equity compensation plans.   During 2020, our financing activities resulted in net cash used in financing of $505.1 million. The cash outflows consisted primarily of $266.5 million used for principal repayments of long-term debt and capital lease obligations, $369.6 million from net payments on floor plan notes payable (non-trade), and $24.9 million used to purchase 843,020 shares of Rush Class A common stock and 225,444 shares of Rush Class B common stock during 2020. Additionally, during 2020, we paid cash dividends of $22.5 million. These cash outflows were partially offset by borrowings of $157.3 million of long-term debt for the purchase of additional units for our rental and leasing operations and $21.0 million from the issuance of shares related to equity compensation plans.   43 Table of Contents   On September 14, 2021, we entered into the WF Credit Agreement with the WF Lenders and 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 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, we entered into 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.   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 September 14, 2021, we entered into Floor Plan Credit Agreement with BMO Harris and the lenders signatory thereto. Prior to the Floor Plan Credit Agreement, we financed the majority of all new commercial vehicle inventory and the loan value of our used commercial vehicle inventory under the Fourth Amended and Restated Floor Plan Credit Agreement with BMO Harris and the majority of such financings will continue to occur under 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 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 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.   Navistar Financial Corporation and Peterbilt offer trade terms that provide an interest-free inventory stocking period for certain new commercial vehicles. This interest-free period is generally 15 to 60 days. If the commercial vehicle is not sold within the interest-free period, we then finance the commercial vehicle under the Floor Plan Credit Agreement.   Cyclicality   Our business is dependent on a number of factors including general economic conditions, fuel prices, interest rate fluctuations, credit availability, 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, total U.S. retail sales of new Class 8 commercial vehicles have ranged from a low of approximately 110,000 in 2010, to a high of approximately 281,440 in 2019. Through geographic expansion, concentration on higher margin Aftermarket Products and 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 Class 8 commercial vehicle industry on our earnings.   44 Table of Contents