RUSH ENTERPRISES INC \TX\ 10-K

Item 8. Financial Statements and Supplementary Data   Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 )      47 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting (PCAOB ID: 42)  80 Consolidated Balance Sheets as of December 31, 2021 and 2020     49 Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 2019   50 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019 51 Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019  52 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 53 Notes to Consolidated Financial Statements     54   46 Table of Contents   Report of Independent Registered Public Accounting Firm The Shareholders and the Board of Directors of Rush Enterprises, Inc.     Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of Rush Enterprises, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.   We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), and our report dated February 24, 2022, expressed an unqualified opinion thereon.   Basis for Opinion   These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit Matter   The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.   47 Table of Contents       New and Used Commercial Vehicle Inventory Reserves       Description of the Matter   At December 31, 2021, the Company’s new and used commercial vehicle inventory balance is approximately $711.4 million, which is net of management’s estimate of inventory reserves. As described in Note 6 to the consolidated financial statements, management adjusts the value of its inventory to net realizable value to the extent it determines inventory cost cannot be recovered. Management estimates future demand and sales prices to calculate the inventory reserves and to make corresponding adjustments to the carrying value of these inventories to reflect the lower of cost or net realizable value.   Auditing management’s estimate of the inventory excess reserves involved auditor subjective judgment because the estimate is sensitive to changes in management’s assumptions for forecasted product demand and future sales prices.   How We Addressed the Matter in Our Audit   We evaluated and tested the design and operating effectiveness of controls over the Company’s processes to estimate the inventory reserves, which included management’s review of the underlying significant assumptions.   Our substantive audit procedures included, among others, evaluating the significant assumptions described above, and we tested the completeness and accuracy of underlying data used in the estimation calculations and evaluating significant assumptions. We also compared the cost of on-hand inventories to customer demand forecasts and historical sales. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the inventory reserves that would result from changes in the assumptions.   /s/ Ernst & Young LLP   We have served as the Company’s auditor since 2002.   San Antonio, Texas February 24, 2022   48 Table of Contents     RUSH ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Shares and Per Share Amounts)       December 31,     December 31,       2021     2020       (unaudited)           Assets                 Current assets:                 Cash and cash equivalents   $ 148,146     $ 312,048   Accounts receivable, net     140,186       172,481   Inventories, net     1,020,136       858,291   Prepaid expenses and other     15,986       14,906   Total current assets     1,324,454       1,357,726   Property and equipment, net     1,278,207       1,203,719   Operating lease right-of-use assets, net     69,008       60,577   Goodwill, net     370,331       292,142   Other assets, net     77,977       71,229   Total assets   $ 3,119,977     $ 2,985,393                     Liabilities and shareholders ’ equity                 Current liabilities:                 Floor plan notes payable   $ 630,731     $ 511,786   Current maturities of long-term debt     −       141,672   Current maturities of finance lease obligations     26,695       26,373   Current maturities of operating lease obligations     12,096       10,196   Trade accounts payable     122,291       110,728   Customer deposits     80,561       74,209   Accrued expenses     131,130       151,830   Total current liabilities     1,003,504       1,026,794   Long-term debt, net of current maturities     334,926       387,982   Finance lease obligations, net of current maturities     89,835       90,740   Operating lease obligations, net of current maturities     57,976       51,155   Other long-term liabilities     26,514       34,246   Deferred income taxes, net     140,473       126,439   Shareholders’ equity:                 Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares outstanding in 2021 and 2020     −       −   Common stock, par value $.01 per share; 60,000,000 Class A shares and 20,000,000 Class B shares authorized; 43,107,867 Class A shares and 12,398,606 Class B shares outstanding in 2021; and 42,503,925 Class A shares and 12,470,308 Class B shares outstanding in 2020     563       551   Additional paid-in capital     470,750       437,646   Treasury stock, at cost: 339,786 Class A shares and 492,052 Class B shares in 2021; and 10,335 Class A shares and 73,437 Class B shares in 2020     ( 36,933 )     ( 2,879 ) Retained earnings     1,031,582       831,850   Accumulated other comprehensive income     787       869   Total shareholders’ equity     1,466,749       1,268,037   Total liabilities and shareholders ’ equity   $ 3,119,977     $ 2,985,393     The accompanying notes are an integral part of these consolidated financial statements.   49 Table of Contents     RUSH ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts)       Year Ended December 31,       2021     2020     2019                             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 revenue     5,126,142       4,735,940       5,809,847   Cost of products sold                         New and used commercial vehicle sales     2,736,502       2,641,487       3,480,682   Aftermarket products and services sales     1,109,249       1,016,574       1,097,337   Lease and rental     188,093       202,412       206,200   Total 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 income (expense):                         Interest income     657       713       1,680   Interest expense     ( 2,427 )     ( 9,727 )     ( 30,487 ) Total interest expense, net     1,770       9,014       28,807   Income before taxes     313,683       151,723       189,523   Income tax provision     72,268       36,836       47,940   Net income   $ 241,415     $ 114,887     $ 141,583                             Earnings per common share                         Basic   $ 4.32     $ 2.09     $ 2.57   Diluted   $ 4.17     $ 2.04     $ 2.51                             Dividends declared per common share   $ 0.74     $ 0.41     $ 0.34     The accompanying notes are an integral part of these consolidated financial statements.   50 Table of Contents     RUSH ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands)       Year Ended December 31,       2021     2020     2019                             Net income   $ 241,415     $ 114,887     $ 141,583   Other comprehensive income net of tax and net of reclassification adjustments:                         Change in currency translation     ( 82 )     532       337   Comprehensive income   $ 241,333     $ 115,419     $ 141,920     The accompanying notes are an integral part of these consolidated financial statements.   51 Table of Contents     RUSH ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY (In Thousands)       Common Stock                                     Accumulated               Shares Outstanding     $0.01 Par     Additional Paid-In     Treasury     Retained     Other Comprehensive               Class A     Class B     Value     Capital     Stock     Earnings     Income(Loss)     Total   Balance, December 31, 2018     43,065       12,435     $ 458     $ 370,025     $ ( 245,842 )   $ 942,287     $ –     $ 1,066,928   Stock options exercised and stock awards     586       –       4       7,585       –       –       –       7,589   Stock-based compensation related to stock options, restricted shares and employee stock purchase plan     –       –       –       19,005       –       –       –       19,005   Vesting of restricted share awards     –       339       2       ( 2,834 )     –       –       –       ( 2,832 ) Issuance of common stock under employee stock purchase plan     175       –       1       3,486       –       –       –       3,487   Common stock repurchases     ( 1,896 )     ( 414 )     –       –       ( 58,287 )     –       –       ( 58,287 ) Cash dividends declared on Class A common stock     –       –       –       –       –       ( 14,037 )     –       ( 14,037 ) Cash dividends declared on Class B common stock     –       –       –       –       –       ( 4,280 )     –       ( 4,280 ) Other comprehensive income     –       –       –       –       –       –       337       337   Net income     –       –       –       –       –       141,583       –       141,583   Balance, December 31, 2019     41,930       12,360     $ 465     $ 397,267     $ ( 304,129 )   $ 1,065,553     $ 337     $ 1,159,493   Stock options exercised and stock awards     1,247       –       10       19,582       –       –       –       19,592   Stock-based compensation related to stock options, restricted shares and employee stock purchase plan     –       –       –       19,356       –       –       –       19,356   Vesting of restricted share awards     –       339       2       ( 2,459 )     –       –       –       ( 2,457 ) Issuance of common stock under employee stock purchase plan     177       –       2       3,900       –       –       –       3,902   Common stock repurchases     ( 843 )     ( 225 )     –       –       ( 24,807 )     –       –       ( 24,807 ) Cancellation of treasury stock     ( 7 )     ( 4 )     72       –       326,057       ( 326,129 )     –     ––   Cash dividends declared on Class A common stock     –       –       –       –       –       ( 17,062 )     –       ( 17,062 ) Cash dividends declared on Class B common stock     –       –       –       –       –       ( 5,399 )     –       ( 5,399 ) Other comprehensive income     –       –       –       –       –       –       532       532   Net income     –       –       –       –       –       114,887       –       114,887   Balance, December 31, 2020     42,504       12,470     $ 551     $ 437,646     $ ( 2,879 )   $ 831,850     $ 869     $ 1,268,037   Stock options exercised and stock awards     784       –       8       14,157       –       –       –       14,165   Stock-based compensation related to stock options, restricted shares and employee stock purchase plan     –       –       –       22,246       –       –       –       22,246   Vesting of restricted share awards     –       347       3       ( 7,447 )     –       –       –       ( 7,444 ) Issuance of common stock under employee stock purchase plan     149       –       1       4,148       –       –       –       4,149   Common stock repurchases     ( 329 )     ( 418 )     –       –       ( 34,054 )     –       –       ( 34,054 ) Cash dividends declared on Class A common stock     –       –       –       –       –       ( 31,816 )     –       ( 31,816 ) Cash dividends declared on Class B common stock     –       –       –       –       –       ( 9,867 )     –       ( 9,867 ) Other comprehensive loss     –       –       –       –       –       –       ( 82 )     ( 82 ) Net income     –       –       –       –       –       241,415       –       241,415   Balance, December 31, 2021     43,108       12,399     $ 563     $ 470,750     $ ( 36,933 )   $ 1,031,582     $ 787     $ 1,466,749     The accompanying notes are an integral part of these consolidated financial statements.   52 Table of Contents     RUSH ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)       Year Ended December 31,       2021     2020     2019   Cash flows from operating activities:                         Net income   $ 241,415     $ 114,887     $ 141,583   Adjustments to reconcile net income to net cash provided by operating activities                         Depreciation and amortization     169,497       177,347       175,484   (Gain) loss on sale of property and equipment, net     ( 1,432 )     ( 1,852 )     102   Stock-based compensation expense related to employee stock options and employee stock purchases     22,246       19,356       19,005   Provision (benefit) for deferred income tax expense     14,034       ( 37,858 )     22,989   Change in accounts receivable, net     32,312       11,223       19,831   Change in inventories     ( 33,572 )     536,682       81,722   Change in prepaid expenses and other, net     ( 252 )     5,822       ( 10,237 ) Change in trade accounts payable     12,053       ( 23,336 )     2,241   Payments on floor plan notes payable – trade, net     −       ( 114,958 )     ( 26,579 ) Change in customer deposits     2,993       31,514       6,512   Change in accrued expenses     ( 31,337 )     48,974       ( 12,757 ) Other, net     ( 5,611 )     ( 4,819 )     1,376   Net cash provided by operating activities     422,346       762,982       421,272   Cash flows from investing activities:                         Acquisition of property and equipment     ( 167,177 )     ( 136,200 )     ( 293,493 ) Proceeds from the sale of property and equipment     3,447       5,783       2,310   Business acquisitions     ( 269,332 )     −       ( 10,168 ) Purchase of equity method investment and call option     −       −       ( 22,499 ) Other     157       2,960       3,394   Net cash used in investing activities     ( 432,905 )     ( 127,457 )     ( 320,456 ) Cash flows from financing activities:                         Draws (payments) on floor plan notes payable – non-trade, net     118,945       ( 369,592 )     ( 104 ) Proceeds from long-term debt     260,336       157,255       210,043   Principal payments on long-term debt     ( 455,064 )     ( 255,279 )     ( 183,538 ) Principal payments on finance lease obligations     ( 13,774 )     ( 11,192 )     ( 8,331 ) Draws on line of credit     −       −       135,000   Payments on line of credit     −       −       ( 135,000 ) Proceeds from issuance of shares relating to employee stock options and employee stock purchases     10,870       21,037       8,244   Payments of cash dividends     ( 41,060 )     ( 22,461 )     ( 18,317 ) Common stock repurchased     ( 33,596 )     ( 24,865 )     ( 58,188 ) Debt issuance costs     −       −       ( 731 ) Net cash used in financing activities     ( 153,343 )     ( 505,097 )     ( 50,922 ) Net (decrease) increase in cash and cash equivalents     ( 163,902 )     130,428       49,894   Cash and cash equivalents, beginning of year     312,048       181,620       131,726   Cash and cash equivalents, end of year   $ 148,146     $ 312,048     $ 181,620   Supplemental disclosure of cash flow information:                         Cash paid during the year for:                         Interest   $ 22,224     $ 38,806     $ 57,373   Income taxes paid, net   $ 101,987     $ 36,364     $ 42,440   Noncash investing and financing activities:                         Assets acquired under finance leases   $ 29,044     $ 49,523     $ 44,904   Guaranty agreement     −       −     $ 5,025     The accompanying notes are an integral part of these consolidated financial statements.   53 Table of Contents   RUSH ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       1. ORGANIZATION AND OPERATIONS :   Rush Enterprises, Inc. (the “Company”) was incorporated in 1965 under the laws of the State of Texas. The Company operates a network of commercial vehicle dealerships that primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, IC Bus or Blue Bird. Through its strategically located network of Rush Truck Centers, the Company provides one -stop service for the needs of its 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.   Stock Split   On September 15, 2020, the Board of Directors of the Company declared a 3 -for- 2 stock split of the Company’s Class A common stock and Class B common stock, which was effected in the form of a stock dividend. On October 12, 2020, the Company 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.   COVID- 19 Risks and Uncertainties   In March 2020, the World Health Organization made the assessment that COVID- 19 could be characterized as a pandemic, and the President of the United States declared the COVID- 19 outbreak a national emergency. The Company’s nationwide network of commercial vehicle dealerships are classified as “essential businesses” and have remained operational across the Company’s dealership network. While the COVID- 19 pandemic is not over, business conditions have improved significantly since the second quarter of 2020. The Company is unable to predict the impact that the COVID- 19 pandemic will have on its future business and operating results due to numerous uncertainties, including the duration and severity of the outbreak.   Joint Venture   On January 3, 2022, Cummins Inc. (“Cummins”) and the Company closed on Cummins’ acquisition of a 50 % equity interest in Momentum Fuel Technologies from the Company. The joint venture between the Company and Cummins will seek to enhance production of a near- zero emissions natural gas powertrains by manufacturing Cummins-branded natural gas fuel delivery systems for the commercial vehicle market in North America. The joint venture will offer aftermarket support through Rush Truck Centers’ dealerships and Cummins’ distributors that will be able to service both the engine and the fuel delivery system.     2. SIGNIFICANT ACCOUNTING POLICIES :   Principles of Consolidation   The consolidated financial statements presented herein include the accounts of Rush Enterprises, Inc. together with its consolidated subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.   Estimates in Financial Statements   The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.   54 Table of Contents   Cash and Cash Equivalents   Cash and cash equivalents generally consist of cash and other money market instruments. The Company considers all highly liquid investments with an original maturity of ninety days or less to be cash equivalents.   Allowance for Credit Losses and Repossession Losses   The Company maintains an allowance for credit losses based on the probability of default, its historical rate of losses, aging and current economic conditions. Accounts receivable consists primarily of commercial vehicle sales receivables, manufacturers’ receivables, leasing and parts and service receivables and other trade receivables. The Company writes off account balances when it has exhausted reasonable collection efforts and determined that the likelihood of collection is remote. These write-offs are charged against the allowance for credit losses.   The Company provides an allowance for repossession losses after considering historical loss experience and other factors that might affect the ability of customers to meet their obligations on finance contracts sold by the Company when the Company has a potential liability.   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 the Company’s 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 the Company’s inventory on hand. An allowance is provided when it is anticipated that cost will exceed net realizable value less a reasonable profit margin.   Property and Equipment   Property and equipment are stated at cost and depreciated over their estimated useful lives. Leasehold improvements are amortized over the useful life of the improvement, or the term of the lease, whichever is shorter. Provision for depreciation of property and equipment is calculated primarily on a straight-line basis. The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest, when incurred, is added to the cost of the underlying assets and is amortized over the estimated useful life of such assets. The cost, accumulated depreciation and amortization and estimated useful lives of the Company’s property and equipment are summarized as follows (in thousands):       2021     2020     Estimated Life (Years)   Land   $ 156,169     $ 136,024         –     Buildings and improvements     552,965       495,808       10 – 39   Leasehold improvements     39,665       38,767       2 – 39   Machinery and shop equipment     92,762       87,090       5 – 20   Furniture, fixtures and computers     84,728       81,834       3 – 15   Transportation equipment     103,611       96,319       3 – 15   Lease and rental vehicles     947,318       905,465       1 – 8   Construction in progress     6,664       2,989               Accumulated depreciation and amortization     ( 705,675 )     ( 640,577 )                                           Total   $ 1,278,207     $ 1,203,719                 The Company recorded depreciation expense of $ 148.3 million and amortization expense of $ 21.2 million for the year ended December 31, 2021, depreciation expense of $ 157.8 million and amortization expense of $ 19.5 million for the year ended December 31, 2020, and depreciation expense of $ 158.7 million and amortization expense of $ 16.8 million for the year ended December 31, 2019.   As of December 31, 2021, the Company had $ 108.5 million in lease and rental vehicles under various finance leases included in property and equipment, net of accumulated amortization of $ 43.5 million. The Company recorded depreciation and amortization expense of $ 116.1 million related to lease and rental vehicles in lease and rental cost of products sold for the year ended December 31, 2021, $ 119.9 million for the year ended December 31, 2020 and $ 120.1 million for the year ended December 31, 2019.   55 Table of Contents   Goodwill   Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the purchase method. The Company tests goodwill for impairment annually during the fourth quarter, or when indications of potential impairment exist. These indicators would include a significant change in operating performance, or a planned sale or disposition of a significant portion of the business, among other factors. The Company tests for goodwill impairment utilizing a fair value approach at the reporting unit level. The Company has deemed its reporting unit to be the Truck Segment, as all components of the Truck Segment are similar.   The impairment test for goodwill involves comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, a second step is required to measure the goodwill impairment loss. The second step includes hypothetically valuing all the tangible and intangible assets of the reporting unit as if the reporting unit had been acquired in a business combination and comparing the hypothetical implied fair value of the reporting unit’s goodwill to the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the hypothetical implied fair value of the goodwill, the Company would recognize an impairment loss in an amount equal to the excess, not to exceed the carrying amount. The Company determines the fair values calculated in an impairment test using the discounted cash flow method, which requires assumptions and estimates regarding future revenue, expenses and cash flow projections. The analysis is based upon available information regarding expected future cash flows of its reporting unit discounted at rates consistent with the cost of capital specific to the reporting unit.   The annual impairment test was performed in the fourth quarter of 2021. No impairment of goodwill was identified during 2021. However, the Company cannot predict the occurrence of certain events that might adversely affect the reported value of goodwill in the future.   The following table sets forth the change in the carrying amount of goodwill for the Company for the year ended December 31, 2021 ( in thousands):   Balance December 31, 2020   $ 292,142   Acquisitions During 2021     78,189   Balance December 31, 2021   $ 370,331     Other Assets   ERP Platform   Total capitalized costs of the Company’s SAP enterprise resource planning software platform (“the ERP Platform”) of $ 5.5 million are recorded on the Consolidated Balance Sheet in Other Assets. Amortization expense relating to the ERP Platform, which is recognized in depreciation and amortization expense in the Consolidated Statements of Income and Comprehensive Income, was $ 1.5 million for the year ended December 31, 2021 and $ 1.9 million for the year ended December 31, 2020. The Company estimates that amortization expense relating to the ERP Platform will be approximately $ 1.2 million for each of the next four years.   Franchise Rights   The Company’s only significant identifiable intangible assets, other than goodwill, are rights under franchise agreements with manufacturers. The fair value of the franchise right is determined at the acquisition date by discounting the projected cash flows specific to each acquisition. The carrying value of the Company’s manufacturer franchise rights was $ 8.6  million at December 31, 2021 and $ 7.0 million at December 31, 2020, and is included in Other Assets on the accompanying Consolidated Balance Sheet. The Company has determined that manufacturer franchise rights have an indefinite life, as there are no economic or other factors that limit their useful lives and they are expected to generate cash flows indefinitely due to the historically long lives of the manufacturers’ brand names. Furthermore, to the extent that any agreements evidencing manufacturer franchise rights have expiration dates, the Company expects that it will be able to renew those agreements in the ordinary course of business. Accordingly, the Company does not amortize manufacturer franchise rights.   56 Table of Contents   Due to the fact that manufacturer franchise rights are specific to a geographic region, the Company has determined that evaluating and including all locations acquired in the geographic region is the appropriate level for purposes of testing franchise rights for impairment. Management reviews indefinite-lived manufacturer franchise rights for impairment annually during the fourth quarter, or more often if events or circumstances indicate that an impairment may have occurred. The Company is subject to financial statement risk to the extent that manufacturer franchise rights become impaired due to decreases in the fair market value of its individual franchises.   The significant estimates and assumptions used by management in assessing the recoverability of manufacturer franchise rights include estimated future cash flows, present value discount rate and other factors. Any changes in these estimates or assumptions could result in an impairment charge. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgment. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluations of manufacturer franchise rights can vary within a range of outcomes.   No impairment write-down was required in the period presented. The Company cannot predict the occurrence of certain events that might adversely affect the reported value of manufacturer franchise rights in the future.   Equity Method Investment and Call Option   On February 25, 2019, the Company acquired 50 % of the equity interest in Rush Truck Centres of Canada Limited (“RTC Canada”), which acquired the operating assets of Tallman Group, the largest International Truck dealer in Canada. The Company was also granted a call option in the purchase agreement that provides the Company with the right to acquire the remaining 50 % equity interest in RTC Canada until the close of business on February 25, 2024. The value of the Company’s call option was $ 3.6 million as of December 31, 2021, and is reported in Other Assets on the Consolidated Balance Sheet.   On April 25, 2019, the Company entered into a Guaranty Agreement (“Guaranty”) with Bank of Montreal (“BMO”), pursuant to which the Company agreed to guaranty up to CAD250 million (the “Guaranty Cap”) of certain credit facilities entered into by and between Tallman Truck Centre Limited (“TTCL”) and BMO. The Company owned a 50 % equity interest in TTCL, which was the sole owner of RTC Canada. Later in 2019, RTC Canada and TTCL were amalgamated into RTC Canada. Interest, fees and expenses incurred by BMO to enforce its rights with respect to the guaranteed obligations and its rights against the Company under the Guaranty are not subject to the Guaranty Cap. In exchange for the Guaranty, RTC Canada is receiving a reduced rate of interest on its credit facilities with BMO. The Guaranty was valued at $ 5.2 million as of December 31, 2021 and December 31, 2020, and is included in the investment in RTC Canada. As of December 31, 2021, the Company’s investment in RTC Canada is $ 36.7 million. The Company’s equity income in RTC Canada is included in Other income on the Consolidated Statements of Income.   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.   In determining its provision for income taxes, the Company uses an annual effective income tax rate based on annual income, permanent differences between book and tax income, and statutory income tax rates. The effective income tax rate also reflects its assessment of the ultimate outcome of tax audits. The Company adjusts its annual effective income tax rate as additional information on outcomes or events becomes available. Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur.   The Company’s income tax returns are periodically audited by tax authorities. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions. In evaluating the exposures associated with its various tax filing positions, the Company adjusts its 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.   57 Table of Contents   The Company’s liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with its various filing positions. The Company’s effective income tax rate is also affected by changes in tax law, the level of earnings and the results of tax audits. Although the Company believes that the judgments and estimates are reasonable, actual results could differ, and the Company may be exposed to losses or gains that could be material. An unfavorable tax settlement would generally require use of the Company’s cash and result in an increase in its effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in the Company’s effective income tax rate in the period of resolution. The Company’s income tax expense includes the impact of reserve provisions and changes to reserves that it considers appropriate, as well as related interest.   Revenue Recognition Policies   The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.  To determine revenue recognition for arrangements that the Company determines are within the scope of ASU 2014 - 09, “ Revenue from Contracts with Customers ( “ Topic 606 ” ) , the Company performs 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) the Company satisfies a performance obligation.  The Company only applies the five -step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.  At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. The Company then assesses 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.  For a complete discussion of accounting for revenue, see Note 17 – Revenue of the Notes to Consolidated Financial Statements.   Cost of Sales   For the Company’s new and used commercial vehicle operations, cost of sales consists primarily of the Company’s actual purchase price, plus make-ready expenses, less any applicable manufacturers’ incentives. For the Company’s parts operations, cost of sales consists primarily of the Company’s actual purchase price, less any applicable manufacturers’ incentives. For the Company’s service and collision center operations, technician labor cost is the primary component of cost of sales. For the Company’s rental and leasing operations, cost of sales consists primarily of depreciation and amortization, rent, maintenance costs, license costs and interest expense considered direct and incremental on the lease and rental fleet owned and leased by the Company. There are no costs of sales associated with the Company’s finance and insurance revenue or other revenue.   Leases   The Company leases commercial vehicles and real estate under finance and operating leases. The Company determines whether an arrangement is a lease at its inception. For leases with terms greater than twelve months, the Company records a lease asset and liability at the present value of lease payments over the term. Many of the Company’s leases include renewal options and termination options that are factored into its determination of lease payments when appropriate.   When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of its leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement.   The Company leases commercial vehicles that the Company owns 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.   58 Table of Contents   Taxes Assessed by a Governmental Authority   The Company accounts for sales taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction on a net (excluded from revenues) basis.   Selling, General and Administrative Expenses   Selling, general and administrative expenses consist primarily of incentive based compensation for sales, finance and general management personnel, salaries for administrative personnel and expenses for rent, marketing, insurance, utilities, research and development and other general operating purposes.   Stock Based Compensation   The Company applies the provisions of ASC topic 718 - 10, “ Compensation – Stock Compensation, ” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including grants of employee stock options, restricted stock units, restricted stock awards and employee stock purchases under the Employee Stock Purchase Plan, based on estimated fair values.   The Company uses the Black-Scholes option-pricing model to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods.   Compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Stock-based compensation expense is recognized based on awards expected to vest. Accordingly, stock based compensation expense has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.   The Company determines the fair value of share-based payment awards on the date of grant using an option-pricing model that is affected by the Company’s stock price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include the Company’s expected stock price volatility over the term of the awards and actual and projected stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s stock options have characteristics that are significantly different from traded options and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of fair value and it may not be indicative of the fair value observed in a market transaction between a willing buyer and a willing seller.   The following table reflects the weighted-average fair value of stock options granted during each period using the Black-Scholes option valuation model with the following weighted-average assumptions used:       2021     2020     2019   Expected stock volatility     36.03 %     33.11 %     31.29 % Weighted-average stock volatility     36.03 %     33.11 %     31.29 % Expected dividend yield     1.65 %     1.20 %     1.13 % Risk-free interest rate     1.07 %     0.80 %     2.45 % Expected life (years)     6.0       6.0       6.0   Weighted-average fair value of stock options granted   $ 14.77     $ 6.36     $ 8.37     The Company computes its historical stock price volatility in accordance with ASC Topic 718 - 10. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The expected life of stock options represents the weighted-average period the stock options are expected to remain outstanding.   59 Table of Contents   Advertising Costs   Advertising costs are expensed as incurred. Advertising and marketing expense was $ 7.5 million for 2021, $ 7.9 million for 2020 and $ 11.5 million for 2019. Advertising and marketing expense is included in selling, general and administrative expense.   Accounting for Internal Use Software   The Company’s accounting policy with respect to accounting for computer software developed or obtained for internal use is consistent with ASC topic 350 - 40 (Internal Use Software) , which provides guidance on accounting for the costs of computer software developed or obtained for internal use and identifies characteristics of internal-use software.  The Company has capitalized software costs, including capitalized interest, of approximately $ 5.5 million as of December 31, 2021, net of accumulated amortization of $ 13.6 million, and had $ 7.0 million as of December 31, 2020, net of accumulated amortization of $ 12.1 million.    Insurance   The Company is partially self-insured for a portion of the claims related to its property and casualty insurance programs. Accordingly, the Company is required to estimate expected losses to be incurred. The Company engages a third -party administrator to assess any open claims and the Company adjusts its accrual accordingly on an annual basis. The Company is also partially self-insured for a portion of the claims related to its worker’s compensation and medical insurance programs. The Company uses 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.   Fair Value Measurements   The Company has various financial instruments that it must measure at fair value on a recurring basis. See Note 9 – Financial Instruments and Fair Value of the Notes to Consolidated Financial Statements, for further information. The Company also applies the provisions of fair value measurement to various nonrecurring measurements for its financial and nonfinancial assets and liabilities.   Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The Company measures its assets and liabilities using inputs from the following three levels of the fair value hierarchy:   Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.   Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).   Level 3 includes unobservable inputs that reflect the Company’s assumptions about what factors market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.   Acquisitions   The Company uses the acquisition method of accounting for the recognition of assets acquired and liabilities assumed through acquisitions at their estimated fair values as of the date of acquisition. 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. The Company determines 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, the Company determines whether the single asset or group of assets, as applicable, meets the definition of a business. As a result, during the measurement period, which is not to exceed one year from the date of acquisition, any changes in the estimated fair values of the net assets recorded for the acquisitions will result in an adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of Income.   60 Table of Contents   Recent Accounting Pronouncements   In March 2020, the FASB issued ASU 2020 - 04, “ Reference Rate Reform (Topic 848 ), ” which provides temporary optional guidance to ease the potential financial reporting burden of the expected market transition away from LIBOR. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedge accounting, and other transactions affected by reference rate reform if certain criteria are met through December 31, 2022. The Company does not expect this standard to have a material effect on its financial position, results of operations and related disclosures.     3. SUPPLIER CONCENTRATION :   Major Suppliers and Dealership Agreements   The Company has entered into dealership agreements with various manufacturers of commercial vehicles and buses (“Manufacturers”). These agreements are nonexclusive agreements that allow the Company to stock, sell at retail and service commercial vehicles and sell parts from the Manufacturers in the Company’s defined area of responsibility. The agreements allow the Company to use the Manufacturers’ names, trade symbols and intellectual property and expire as follows:   Manufacturer   Expiration Dates Peterbilt   March 2022 through September 2022 International   December 2022 through December 2026 Isuzu   Indefinite Hino   Indefinite Ford   Indefinite Blue Bird   August 2024 IC Bus   December 2022 through October 2026   These agreements, as well as agreements with various other Manufacturers, impose a number of restrictions and obligations on the Company, including restrictions on a change in control of the Company and the maintenance of certain required levels of working capital. Violation of these restrictions could result in the loss of the Company’s right to purchase the Manufacturers’ products and use the Manufacturers’ trademarks.   The Company purchases its new Peterbilt vehicles from Peterbilt and most of the parts sold at its Peterbilt dealerships from PACCAR, Inc, the parent company of Peterbilt, at prevailing prices charged to all franchised dealers. Sales of new Peterbilt commercial vehicles accounted for approximately 62.5 % of the Company’s new vehicle sales revenue for the year ended December 31, 2021, 59.0 % of the Company’s new vehicle sales revenue for the year ended December  31, 2020, and 61.6 % of the Company’s new vehicle sales revenue for the year ended December  31, 2019.   Primary Lenders   The Company purchases its new and used commercial vehicle inventories with the assistance of floor plan financing programs as described in Note 7 to these Notes to Consolidated Financial Statements. The Company finances the majority of all new commercial vehicle inventory and the loan value of its used commercial vehicle inventory under the Floor Plan Credit Agreement with BMO Harris. The Floor Plan Credit Agreement includes an aggregate loan commitment of $ 1.0 billion. The Company’s floor plan financing agreements provide that the occurrence of certain events will be considered events of default. In the event that the Company’s floor plan financing becomes insufficient, or its relationship with any of its current primary lenders terminates, the Company would need to obtain similar financing from other sources. Management believes it can obtain additional floor plan financing or alternative financing if necessary.   On September 14, 2021, the Company entered into a credit agreement (“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 the Company’s capital expenditures, including commercial vehicle purchases for the Company’s Idealease lease and rental fleet, and general working capital needs. The Company expects to use the revolving credit loans available under the WF Credit Agreement primarily for the purpose of purchasing commercial vehicles for the Company’s Idealease lease and rental fleet.   61 Table of Contents   On October 1, 2021, the Company entered into that certain Amended and Restated Inventory Financing and Purchase Money Security Agreement with 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 the Company’s PacLease franchises.   Concentrations of Credit Risks   Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with what it considers to be quality financial institutions based on periodic assessments of such institutions. The Company’s cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.   The Company controls credit risk through credit approvals and by selling a majority of its trade receivables, other than vehicle accounts receivable, without recourse. Concentrations of credit risk with respect to trade receivables are reduced because a large number of geographically diverse customers make up the Company’s customer base; however, substantially all of the Company’s business is concentrated in the United States commercial vehicle markets and related aftermarkets.   The Company generally sells finance contracts it enters into with customers to finance the purchase of commercial vehicles to third parties. These finance contracts are sold by the Company both with and without recourse. A majority of the Company’s finance contracts are sold without recourse. The Company provides an allowance for doubtful receivables and a reserve for repossession losses related to finance contracts sold with recourse. Historically, the Company’s allowances and reserves have covered losses inherent in these receivables.     4. ACCOUNTS RECEIVABLE :   The Company’s accounts receivable, net, consisted of the following (in thousands):       December 31,       2021     2020                     Trade accounts receivable from sale of vehicles   $ 37,599     $ 82,338   Trade receivables other than vehicles     68,884       58,689   Warranty claims     9,290       9,032   Other accounts receivable     26,003       24,027   Less allowance for credit losses     ( 1,590 )     ( 1,605 )                   Total   $ 140,186     $ 172,481       5. INVENTORIES :   The Company’s inventories, net, consisted of the following (in thousands):       December 31,       2021     2020                     New commercial vehicles   $ 617,225     $ 563,097   Used commercial vehicles     95,051       56,214   Parts and accessories     290,007       238,195   Other     26,232       16,175   Less allowance     ( 8,379 )     ( 15,390 )                   Total   $ 1,020,136     $ 858,291     62 Table of Contents     6. VALUATION ACCOUNTS:   Valuation and allowance accounts include the following (in thousands):       Balance Beginning of Year     Net Charge to Costs and Expenses     Net Write- Offs     Balance End of Year                                     2021                                 Reserve for parts inventory   $ 9,315     $ 3,520     $ ( 5,375 )   $ 7,460   Reserve for commercial vehicle inventory     6,075       ( 536 )     ( 4,620 )     919                                     2020                                 Reserve for parts inventory   $ 7,661     $ 4,501     $ ( 2,847 )   $ 9,315   Reserve for commercial vehicle inventory     9,602       9,598       ( 13,125 )     6,075                                     2019                                 Reserve for accounts receivable   $ 987     $ 2,065     $ ( 2,038 )   $ 1,014   Reserve for warranty receivables     429       1,661       ( 1,680 )     410   Reserve for parts inventory     7,050       4,460       ( 3,849 )     7,661   Reserve for commercial vehicle inventory     4,587       12,489       ( 7,474 )     9,602     Accounts Receivable and Allowance for Credit Losses   The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected. Under Topic 326, the Company is required to remeasure expected credit losses for financial instruments held on the reporting date based on historical experience, current conditions and reasonable forecasts.   Accounts receivable consists primarily of commercial vehicle sales receivables, manufacturers’ receivables and leasing, parts and service sales receivables and other trade receivables. The Company maintains an allowance for credit losses based on the probability of default, its historical rate of losses, aging and current economic conditions. The Company’s assessment of future losses in 2021 considered the impact of the COVID- 19 pandemic on forecasted economic trends. The Company writes off account balances when it has exhausted reasonable collection efforts and determined that the likelihood of collection is remote. These write-offs are charged against the allowance for credit losses.   The following table summarizes the changes in the allowance for credit losses (in thousands):       Balance December 31, 2020     Provision for the Year Ended December 31, 2021     Write offs Against Allowance, net of Recoveries     Balance December 31, 2021                                     Commercial vehicle receivables   $ 172     $ ( 96 )   $ −     $ 76   Manufacturers’ receivables     136       1,158       ( 875 )     419   Leasing, parts and service receivables     1,278       1,335       ( 1,544 )     1,069   Other receivables     19       7       −       26   Total   $ 1,605     $ 2,404     $ ( 2,419 )   $ 1,590     Inventory   The Company provides a reserve for obsolete and slow moving parts. The reserve is reviewed and, if necessary, adjustments are made on a quarterly basis. The Company relies on historical information to support its reserve. Once the inventory is written down, the Company does not reverse any reserve balance until the inventory is sold.   The valuation for new and used commercial vehicle inventory is based on specific identification. A detail of new and used commercial vehicle inventory is reviewed and, if necessary, adjustments to the value of specific vehicles are made on a quarterly basis.   63 Table of Contents     7. FLOOR PLAN NOTES PAYABLE AND LINES OF CREDIT :   Floor Plan Notes Payable   Floor plan notes are financing agreements to facilitate the Company’s purchase of new and used commercial vehicle inventory. These notes are collateralized by the inventory purchased and accounts receivable arising from the sale thereof. The Company’s Floor Plan Credit Agreement provides for a loan commitment of up to $ 1.0 billion and has the interest rate benchmarked to LIBOR, as defined in the agreement. The interest rate under the Company’s Floor Plan Credit Agreement is the one month LIBOR rate plus 1.10 %. The effective interest rate applicable to the Company’s Floor Plan Credit Agreement was approximately 1.2 % as of December 31, 2021. The Company utilizes its excess cash on hand to pay down its outstanding borrowings under its Floor Plan Credit Agreement, and the resulting interest earned is recognized as an offset to the Company’s gross interest expense under the Floor Plan Credit Agreement.   The Company finances substantially all of the purchase price of its new commercial vehicle inventory and the loan value of its used commercial vehicle inventory under its Floor Plan Credit Agreement, under which BMO Harris pays the manufacturer directly with respect to new commercial vehicles. Amounts borrowed under the Company’s Floor Plan Credit Agreement are due when the related commercial vehicle inventory (collateral) is sold. The Company’s Floor Plan Credit Agreement expires September 14, 2026, although BMO Harris has the right to terminate the Floor Plan Credit Agreement at any time upon 360 days written notice and the Company may terminate at any time, subject to specified limited exceptions. On December 31, 2021, the Company had approximately $ 549.0 million outstanding under its Floor Plan Credit Agreement.   The Company’s weighted average interest rate for floor plan notes payable was 0.42 % for the year ended December 31, 2021, and 1.26 % for the year ended December 31, 2020, which is net of interest related to prepayments of new and used inventory loans.   Assets pledged as collateral were as follows (in thousands):       December 31,       2021     2020   Inventories, new and used vehicles at cost based on specific identification, net of allowance   $ 711,358     $ 613,236   Vehicle sale related accounts receivable     37,599       82,338   Total   $ 748,957     $ 695,574                     Floor plan notes payable related to vehicles   $ 630,731     $ 511,786     Lines of Credit   The Company has 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 as of 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.   64 Table of Contents     8. LONG-TERM DEBT :   Long-term debt was comprised of the following (in thousands):       December 31,       2021     2020                     Variable interest rate term notes   $ 334,926     $ 40,975   Fixed interest rate term notes     −       488,679                     Total debt     334,926       529,654                     Less: current maturities     −       ( 141,672 )                   Total long-term debt, net of current maturities   $ 334,926     $ 387,982     As of December  31, 2021, long-term debt maturities were as follows (in thousands):   2022   $ −   2023     −   2024     149,902   2025     185,024   2026     −   Thereafter     −   Total   $ 334,926     On September 14, 2021, the Company 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 the Company’s capital expenditures, including commercial vehicle purchases for the Company’s Idealease lease and rental fleet, and general working capital needs. 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 the Company’s 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 the Company’s 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. The Company may terminate the commitments at any time. The Company expects to use the revolving credit loans available under the WF Credit Agreement primarily for the purpose of purchasing commercial vehicles for the Company’s Idealease lease and rental fleet.   On October 1, 2021, the Company 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 the Company’s capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through the Company’s PacLease franchises. Advances under the PLC Agreement bear interest per annum, payable on the fifth day of the following month, at the Company’s 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 the Company 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.   The interest associated with the WF Credit Agreement and the PLC Agreement is recorded in interest expense on the Consolidated Statement of Income. The WF Credit Agreement and the PLC Agreement are general borrowing facilities, whereas prior to the WF Credit Agreement and PLC Agreement, interest expense associated with the Company’s lease and rental fleet was recorded in cost of sales as the borrowings were directly related to each lease and rental vehicle.   The Company’s 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, the Company was in compliance with all debt covenants related to debt secured by lease and rental units, its floor plan credit agreements and the WF Credit Agreement. The Company does not anticipate any breach of the covenants in the foreseeable future.   65 Table of Contents     9. FINANCIAL INSTRUMENTS AND FAIR VALUE :     The Company measures certain financial assets and liabilities at fair value on a recurring basis. Financial instruments consist primarily of cash, accounts receivable, accounts payable and floor plan notes payable. The carrying values of the Company’s financial instruments approximate fair value due either to their short-term nature or existence of variable interest rates, which approximate market rates. Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments as of December 31, 2021, and 2020. The carrying value of current assets and current liabilities approximates the fair value due to the short maturity of these items.   The fair value of the Company’s long-term debt is based on secondary market indicators. Because the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including remaining maturities, interest rate, credit rating, collateral and liquidity. Accordingly, the Company concluded that the valuation measurement inputs of its long-term debt represent, at its lowest level, current market interest rates available to the Company for similar debt and the Company’s current credit standing. The Company has categorized such debt within Level 2 of the hierarchy framework. The carrying amount approximates fair value.     10. LEASES :   In February 2016, the FASB issued ASU No. 2016 - 02, “ Leases ( “ Topic 842 ” ), ” which was intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than twelve months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.   A lease is classified as a finance lease if any of the following conditions exist on the date of lease commencement:     ● The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.   ● The lease provides the lessee an option to purchase the underlying asset, and that option is reasonably certain to be exercised.   ● The lease term is for the major part of the remaining economic life of the underlying asset.   ● The present value of the lease payments equals or exceeds substantially all of the fair value of the underlying asset.   ● The underlying asset is of such a specialized nature that only the lessee can use it without major modifications.   ● The lessor expects to have no alternative use for the leased asset at the end of the lease.   The Company adopted Topic 842 on January 1, 2019 and applied the practical expedients permitted, which among other things, allowed it to retain its existing assessment of whether an arrangement is, or contains, a lease and whether such lease is classified as an operating or finance lease. The Company made an accounting policy election that keeps leases with an initial term of twelve months or less off of the balance sheet and results in recognizing those lease payments in the Consolidated Statements of Income and Comprehensive Income on a straight-line basis over the lease term.   The Company leases commercial vehicles and real estate under finance and operating leases. The Company determines whether an arrangement is a lease at its inception. For leases with terms greater than twelve months, the Company records the related asset and obligation at the present value of lease payments over the term. Many of the Company’s leases include renewal options and/or termination options that are factored into its determination of lease payments when appropriate. The Company has elected not to account for lease and nonlease components as a single combined lease component as lessee. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of its leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement.   66 Table of Contents   Lease of Vehicles as Lessee   The Company leases commercial vehicles as the lessee under finance leases and operating leases. The lease terms vary from one month to ten years. Commercial vehicle finance leases have always been reported on the Consolidated Balance Sheet, while operating leases were added to the Consolidated Balance Sheet in 2019 with the adoption of Topic 842. These vehicles are then subleased or rented by the Company to customers under various agreements. The Company received sublease income under non-cancelable subleases of $ 33.0 million for the year ended December 31, 2021 and $ 26.9 million for the year ended December 31, 2020.   The Company usually guarantees the residual value of vehicles under operating lease and finance lease arrangements. As of December 31, 2021, the Company guaranteed commercial vehicle residual values of approximately $ 59.6 million under operating lease and finance lease arrangements.   Lease of Facilities as Lessee   The Company’s facility leases are classified as operating and finance leases and primarily reflect its use of dealership facilities and office space. The lease terms vary from one year to 83 years, some of which include options to extend the lease term, and some of which include options to terminate the lease within one year. The Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities.   Lease Costs and Supplemental Information   Components of lease cost are as follows (in thousands):         Twelve Months Ended   Component Classification   December 31, 2021     December 31, 2020   Operating lease cost SG&A expense   $ 9,826     $ 9,986   Operating lease cost Lease and rental cost of products sold     4,449       4,654   Finance lease cost – amortization of right-of-use assets Lease and rental cost of products sold     19,138       16,791   Finance lease cost – interest on lease liabilities Lease and rental cost of products sold     5,749       4,678   Short-term lease cost SG&A expense     135       66     Supplemental cash flow information and non-cash activity related to operating and finance leases are as follows (in thousands):       Twelve Months Ended       December 31, 2021     December 31, 2020   Operating cash flow information:                 Cash paid for amounts included in the measurement of lease liabilities   $ 20,024     $ 19,318   Financing cash flow information:                 Cash paid for amounts included in the measurement of lease liabilities   $ 13,774     $ 11,192   Non-cash activity:                 Operating lease right-of-use assets obtained in exchange for lease obligations   $ 24,802     $ 16,545     Weighted-average remaining lease term and discount rate for operating and finance leases as of December 31, 2021 are as follows:   Weighted-average remaining lease term   72 months   Weighted-average discount rate     4.4 %   67 Table of Contents   Maturities of lease liabilities by fiscal year for finance leases and operating leases as of December 31, 2021 are as follows (in thousands):       Finance Leases     Operating Leases   2022   $ 31,484     $ 14,484   2023     25,671       11,955   2024     27,641       12,065   2025     19,734       8,330   2026     14,398       7,435   2027 and beyond     11,745       33,522   Total lease payments   $ 130,673     $ 87,791   Less: Imputed interest     ( 14,143 )     ( 17,719 ) Present value of lease liabilities   $ 116,530     $ 70,072     Lease of Vehicles as Lessor   The Company leases commercial vehicles that the Company owns to customers primarily over periods of one to ten years. The Company applied the practical expedient permitted within Topic 842 that allows it not to separate lease and nonlease components. Nonlease components typically consist of maintenance and licensing for the commercial vehicle. The variable nonlease components are generally based on mileage. Some leases contain an option for the lessee to purchase the commercial vehicle.   The Company’s policy is to depreciate its 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 the Company realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term.   Sales-type leases are recognized by the Company as lease receivables. The lessee obtains control of the underlying asset and the Company recognizes sales revenue upon lease commencement. The receivable for sales-type leases as of December 31, 2021 in the amount of $ 5.4 million is reflected in Other Assets on the Consolidated Balance Sheet.   Minimum rental payments to be received for non-cancelable leases and subleases in effect as of December 31, 2021, are as follows (in thousands):   2022   $ 126,844   2023     99,774   2024     72,594   2025     43,753   2026     20,264   Thereafter     6,021   Total   $ 369,250     Rental income during the year ended December 31, 2021, and 2020, consisted of the following (in thousands):       2021     2020   Minimum rental payments   $ 214,400     $ 205,640   Nonlease payments     32,834       30,583   Total   $ 247,234     $ 236,223     68 Table of Contents     11. SHARE BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS :   Employee Stock Purchase Plan   The Company’s 2004 Employee Stock Purchase Plan, as amended and restated (the “Employee Stock Purchase Plan”) allows eligible employees to contribute up to $ 10,625 of their base earnings every six months toward the semi-annual purchase of the Company’s Class A Common Stock. The employee’s purchase price is 85 % of the lesser of the closing price of the Class A Common Stock on the first business day or the last business day of the semi-annual offering period, as reported by The NASDAQ Global Select Market. Employees may purchase shares having a fair market value of up to $ 25,000 (measured as of the first day of each semi-annual offering period) for each calendar year. Under the Employee Stock Purchase Plan, there are approximately 594,717 shares remaining of the 2,700,000 shares of the Company’s Class A Common Stock that were reserved for issuance. The Company issued 148,999 shares under the Employee Stock Purchase Plan during the year ended December 31, 2021 and 176,807 shares during the year ended December 31, 2020. Of the 7,166 employees eligible to participate, approximately 1,854 elected to participate in the plan as of December 31, 2021.   Non-Employee Director Stock Option Plan   The Rush Enterprises, Inc. 2006 Non-Employee Director Stock Option Plan, as amended and restated (the “Director Plan”), reserved 750,000 shares of Class A Common Stock for issuance upon exercise of any awards granted under the plan. The Director Plan is designed to attract and retain highly qualified non-employee directors. Currently, each non-employee director receives a grant of the Company’s Class A Common Stock equivalent to a compensation value of $145,000; provided however, that directors may elect to receive up to 40 % of the value of such grant in cash. In 2021, three non-employee directors each received a grant of 2,875 shares of the Company’s Class A Common Stock and two non-employee directors each received a grant of 2,013 shares of the Company’s Class A Common Stock and $ 43,500 cash and one non-employee director received a grant of 1,725 shares of the Company’s Class A Common Stock and $ 58,000 cash for total compensation equivalent to $ 145,000 each. One director who was appointed to the Company’s Board of Directors in October of 2021 received 1,350 shares of the Company’s Class A Common Stock, for total compensation equivalent to $ 72,500 . In 2020, three non-employee directors each received a grant of 5,235 shares of the Company’s Class A Common Stock and three non-employee directors each received a grant of 3,141 shares of the Company’s Class A Common Stock and $ 50,000 cash, for total compensation equivalent to $ 125,000 each. Under the Director Plan, there are approximately 148,152 shares remaining for issuance of the 750,000 shares of the Company’s Class A Common Stock that were reserved for issuance. The Company granted 15,726 shares of Class A Common Stock under the Director Plan during the year ended December 31, 2021 and 25,128 shares of Class A Common Stock under the Director Plan during the year ended December 31, 2020.   Employee Incentive Plans   In May 2007, the Board of Directors and shareholders adopted the Rush Enterprises, Inc. 2007 Long-Term Incentive Plan (the “2007 Incentive Plan”). The 2007 Incentive Plan provides for the grant of stock options (which may be nonqualified stock options or incentive stock options for tax purposes), stock appreciation rights issued independent of or in tandem with such options (“SARs”), restricted stock awards and performance awards. The 2007 Incentive Plan was amended and restated on May 20, 2014, May 16, 2017 and again on May 12, 2020, to increase the number of shares available for issuance under the plan to 13,200,000 shares of Class A Common Stock and 4,800,000 shares of Class B Common Stock and to make certain other changes intended to bring the 2007 Incentive Plan into conformance with current best practices.   The aggregate number of shares of common stock subject to stock options or SARs that may be granted to any one participant in any year under the 2007 Incentive Plan is 150,000  shares of Class A Common Stock or 150,000 shares of Class B Common Stock. Each option granted pursuant to the 2007 Incentive Plan has a ten year term from the grant date and vests in three equal annual installments beginning on the third anniversary of the grant date. The Company has 13,200,000 shares of Class A Common Stock and 4,800,000 shares of Class B Common Stock reserved for issuance under the Company’s 2007 Incentive Plan. As of December 31, 2021, approximately 2,243,779 shares of Class A Common Stock and 1,308,825 shares of Class B Common Stock are available for issuance under the Company’s 2007 Incentive Plan. The Company issues new shares of its Class A or Class B Common Stock upon the exercise of stock options or vesting of restricted stock units and upon the issuance of restricted stock awards. During the year ended December 31, 2021, the Company granted to employees 498,700 options to purchase Class A Common Stock and 340,650 restricted Class B Common Stock awards under the 2007 Incentive Plan. Restricted stock awards are issued when granted, but are subject to vesting requirements. During the year ended December 31, 2020, the Company granted to employees 753,600 options to purchase Class A Common Stock and 518,400 restricted Class B Common Stock awards under the 2007 Incentive Plan.   69 Table of Contents   Valuation and Expense Information   Stock-based compensation expense related to stock options, restricted stock awards, restricted stock units and employee stock purchases was $ 22.2 million for the year ended December 31, 2021, $ 19.4 million for the year ended December 31, 2020, and $ 19.0 million for the year ended December 31, 2019. Cash received from options exercised and shares purchased under all share-based payment arrangements was $ 18.3 million for the year ended December 31, 2021, $ 23.5 million for the year ended December 31, 2020, and $ 11.1 million for the year ended December 31, 2019.   The following table presents a summary of the Company’s stock option activity and related information for the year ended December 31, 2021:                       Weighted                       Weighted     Average                       Average     Remaining     Aggregate               Exercise     Contractual     Intrinsic   Options   Shares     Price     Life (in Years)     Value                                     Balance of Outstanding Options at January 1, 2021     4,080,944     $ 22.01                   Granted     498,700       49.47                   Exercised     ( 768,668 )     18.43                   Forfeited     ( 6,000 )     37.16                   Balance of Outstanding Options at December 31, 2021     3,804,976     $ 26.31       6.3     $ 111,599,381   Expected to vest after December 31, 2021     2,549,712     $ 29.93       7.5     $ 65,546,772   Vested and exercisable at December 31, 2021     1,228,362     $ 18.54       3.8     $ 45,572,873     The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of the Company’s Class A Common Stock on December 31, 2021, which was $ 55.64 . The total intrinsic value of options exercised was $ 23.4 million during the year ended December 31, 2021, $ 20.8 million during the year ended December 31, 2020, and $ 8.7 million during the year ended December 31, 2019.   The following table presents a summary of the status of the number of shares underlying the Company’s non-vested stock options as of December 31, 2021, and changes during the year ended December 31, 2021:               Weighted               Average       Number of     Grant Date   Non-vested Shares   Shares     Fair Value                     Non-vested at January 1, 2021     2,737,757     $ 7.95   Granted     498,700       14.77   Vested     ( 653,843 )     7.60   Forfeited     ( 6,000 )     11.07                     Non-vested at December 31, 2021     2,576,614     $ 9.35     The total fair value of vested options was $ 5.0 million during the year ended December 31, 2021, $ 4.5 million during the year ended December 31, 2020, and $ 5.0 million during the year ended December 31, 2019. The weighted-average grant date fair value of options granted was $ 14.77 per share during the year ended December 31, 2021, $ 6.36 per share during the year ended December 31, 2020, and $ 8.37 per share during the year ended December 31, 2019.   Stock Awards   The Company granted restricted stock awards to certain of its employees under the 2007 Incentive Plan and unrestricted stock awards to its non-employee directors under the Director Plan during the year ended December 31, 2021. The restricted stock awards and previously granted restricted stock units granted to employees vest in three equal installments on the first, second and third anniversary of the grant date and are forfeited in the event the recipient’s employment or relationship with the Company is terminated prior to vesting, except as a result of retirement or under certain circumstances associated with a change of control or involuntary termination, as further described in the Company’s executive transition plan. The fair value of the restricted stock awards and restricted stock unit awards granted to the Company’s employees is amortized to expense on a straight-line basis over the restricted stock’s vesting period. The shares granted to non-employee directors are expensed on the grant date.   70 Table of Contents   The following table presents a summary of the Company’s non-vested restricted stock awards at December  31, 2021:               Weighted                               Average             Weighted               Remaining     Aggregate     Average               Contractual     Intrinsic     Grant Date   Stock Awards and Units   Shares     Life (in Years)     Value     Fair Value                                     Outstanding non-vested shares at January 1, 2021     987,728                     $ 24.28   Granted     356,376                       44.86   Vested     ( 499,084 )                     25.94   Forfeited     ( 1,200 )                     44.59   Outstanding non-vested at December 31, 2021     843,820       8.4     $ 45,540,965       31.97   Expected to vest after December 31, 2021     842,423       8.4     $ 45,465,553             The total fair value of the shares issued upon the vesting of restricted and unrestricted stock awards and restricted stock unit awards during the year ended December 31, 2021 was $ 12.9 million. The weighted-average grant date fair value of stock awards granted was $ 44.86 per share during the year ended December 31, 2021, $ 21.98 per share during the year ended December 31, 2020 and $ 26.91 per share during the year ended December 31, 2019.   As of December 31, 2021, the Company had $ 9.3 million of unrecognized compensation expense related to non-vested employee stock options to be recognized over a weighted-average period of 2.2 years and $ 9.2 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.3 years.   Defined Contribution Plan   The Company has a defined contribution plan (the “Rush 401k Plan”) that is available to all employees. Each employee who has completed 30 days of continuous service is entitled to enter the Rush 401k Plan on the first day of the following month. Participating employees may contribute from 1 % to 50 % of their total gross compensation. However, certain highly compensated employees are limited to a maximum contribution of 15 % of total gross compensation. Effective February 1, 2012, for the first 10 % of an employee’s contribution, the Company contributed an amount equal to 20 % of the employees’ contributions for those employees with less than five years of service and an amount equal to 40 % of the employees’ contributions for those employees with more than five years of service. Effective June 16, 2020, as part of the Company’s expense reductions due to the Covid- 19 pandemic, for the first 10 % of an employee’s contribution, the Company contributed an amount equal to 5 % of the employees’ contributions for those employees with less than five years of service and an amount equal to 10 % of the employees’ contributions for those employees with more than five years of service. Effective March 15, 2021, for the first 10 % of an employee’s contribution, the Company contributed an amount equal to 20 % of the employees’ contributions for those employees with less than five years of service and an amount equal to 40 % of the employees’ contributions for those employees with more than five years of service. The Company incurred expenses related to the Rush 401k Plan of approximately $ 8.2 million during the year ended December 31, 2021, $ 6.0 million during the year ended December 31, 2020 and $ 9.4 million during the year ended December  31, 2019.   Deferred Compensation Plan   On November 6, 2010, the Board of Directors of the Company adopted the Rush Enterprises, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”) pursuant to which certain employees and directors may elect to defer a portion of their annual compensation. The Deferred Compensation Plan was amended and restated effective May 18, 2021 in order to bring the plan into conformance with current “best” practices. The Deferred Compensation Plan also provides the Company with the discretion to make matching contributions to participants’ accounts. The Company established a rabbi trust to finance obligations under the Deferred Compensation Plan with corporate-owned variable life insurance contracts. Participants are 100 % vested in their respective deferrals and the earnings thereon. The first deferral election period began on January 1, 2011. The Company’s liability related to the Deferred Compensation Plan was $ 21.3 million on December 31, 2021 and $ 19.5 million on December 31, 2020. The related cash surrender value of the life insurance contracts was $ 12.7 million on December 31, 2021 and $ 11.5 million on December 31, 2020.   71 Table of Contents   The Company currently does not provide any post-retirement benefits nor does it provide any post-employment benefits.     12. EARNINGS PER SHARE :   Basic earnings per share (“EPS”) were computed by dividing income from continuing operations by the weighted average number of shares of common stock outstanding during the period. Diluted EPS differs from basic EPS due to the assumed conversions of potentially dilutive options, restricted shares awards and restricted stock unit awards that were outstanding during the period.   Each share of Class A Common Stock ranks equal to each share of Class B Common Stock with respect to receipt of any dividends or distributions declared on shares of common stock and the right to receive proceeds on liquidation or dissolution of the Company after payment of its indebtedness and liquidation preference payments to holders of any preferred shares. However, holders of Class A Common Stock have 1/20th of one vote per share on all matters requiring a shareholder vote, while holders of Class B Common Stock have one full vote per share.   The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for income from continuing operations (in thousands, except per share amounts):       2021     2020     2019   Numerator-                         Numerator for basic and diluted earnings per share −                         Net income available to common shareholders   $ 241,415     $ 114,887     $ 141,583   Denominator-                         Denominator for basic earnings per share – weighted average shares outstanding     55,892       54,866       54,988   Effect of dilutive securities−                         Employee and director stock options and restricted share awards     1,986       1,376       1,368   Denominator for diluted earnings per share − adjusted weighted average shares outstanding and assumed conversions     57,878       56,242       56,356   Basic earnings per common share   $ 4.32     $ 2.09     $ 2.57   Diluted earnings per common share and common share equivalents   $ 4.17     $ 2.04     $ 2.51     Options to purchase shares of common stock that were outstanding for the years ended December  31, 2021, 2020 and 2019 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive are as follows (in thousands):       2021     2020     2019   Anti-dilutive options – weighted average     437       1,349       1,663     72 Table of Contents     13. INCOME TAXES:   The tax provisions are summarized as follows (in thousands):       Year Ended December 31,       2021     2020     2019   Income before income taxes:                         Domestic   $ 307,260     $ 146,055     $ 188,174   Foreign     6,423       5,668       1,349   Total     313,683       151,723       189,523                             Current provision                         Federal   $ 47,475     $ 67,988     $ 20,303   State     10,759       6,706       4,648   Total     58,234       74,694       24,951   Deferred provision (benefit)                         Federal     13,809       ( 37,683 )     20,925   State     ( 631 )     ( 1,254 )     2,064   Foreign     856       1,079       −   Total     14,034       ( 37,858 )     22,989   Provision (benefit) for income taxes   $ 72,268     $ 36,836     $ 47,940     A reconciliation of taxes based on the federal statutory rates and the provisions (benefits) for income taxes are summarized as follows (in thousands):       Year Ended December 31,       2021     2020     2019   Income taxes at the federal statutory rate   $ 65,694     $ 31,862     $ 39,530   State income taxes, net of federal benefit     7,874       4,487       5,303   Tax effect of permanent differences     ( 2,502 )     283       1,562   Foreign tax rate differential     ( 313 )     ( 111 )     −   Other, net     1,515       315       1,545   Provision (benefit) for income taxes   $ 72,268     $ 36,836     $ 47,940     The following summarizes the components of net deferred income tax liabilities included in the balance sheet (in thousands):       December 31,       2021     2020   Deferred income tax (assets) liabilities:                 Inventory   $ ( 2,704 )   $ ( 4,329 ) Accounts receivable     ( 349 )     ( 168 ) Finance lease obligations     ( 27,242 )     ( 27,522 ) Finance and operating leases     ( 16,379 )     ( 13,607 ) Stock options     ( 6,993 )     ( 7,463 ) Accrued liabilities     ( 5,768 )     ( 7,680 ) State net operating loss carry forward     ( 1,438 )     ( 1,101 ) State tax credit     ( 120 )     ( 193 ) Other     ( 2,765 )     ( 3,302 ) Difference between book and tax basis- Operating lease assets     16,132       13,444   Difference between book and tax basis- Depreciation and amortization     188,099       178,360   Net deferred income tax liability   $ 140,473     $ 126,439     As of December 31, 2021, the Company had approximately $ 30.8 million in state net operating loss carry forwards that expire from 2021 to 2040, which result in a deferred tax asset of approximately $ 1.4 million. The Company has evaluated whether its state net operating losses are realizable and has not recorded a valuation allowance against them. The valuation allowance did not change over the prior year ending December 31, 2020.   73 Table of Contents   The Company had unrecognized income tax benefits totaling $ 4.3 million as a component of accrued liabilities as of December 31, 2021, and $ 3.3 million at December 31, 2020, the total of which, if recognized, would impact the Company’s effective tax rate. An unfavorable settlement would require a charge to income tax expense and a favorable resolution would be recognized as a reduction to income tax expense. The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $ 129,660 , $ 6,150 , and $ 5,220 in interest expense (income). No amounts were accrued for penalties. The Company had approximately $279,000, $ 150,000 and $ 144,000 of interest accrued as of December 31, 2021, 2020 and 2019, respectively.   Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $ 13.4 million at December 2021. Those earnings are considered to be indefinitely reinvested. Upon repatriation of those earnings in the form of dividends or otherwise, the Company may be subject to state and local taxes, and/or withholding taxes payable to the various foreign countries. The Company expects to be able to take a 100 % dividends received deduction to offset any U.S. federal income tax liability on the distribution of untaxed earnings and profits.   The Company does not anticipate a significant change in the amount of unrecognized tax benefits in the next 12 months. As of December 31, 2021, the tax years ended December 31, 2018 through 2021 remained subject to audit by federal tax authorities and the tax years ended December 31, 2017 through 2021, remained subject to audit by state tax authorities.   The table below presents the reconciliation of the change in the unrecognized tax benefits (in thousands):       2021     2020     2019   Unrecognized tax benefits at beginning of period   $ 3,306     $ 3,007     $ 2,389   Gross increases – tax positions in current year     1,512       651       1,188   Reductions due to lapse of statute of limitations     ( 509 )     ( 352 )     ( 570 ) Unrecognized tax benefits at end of period   $ 4,309     $ 3,306     $ 3,007       14. COMMITMENTS AND CONTINGENCIES :   From time to time, the Company is involved in litigation arising out of its operations in the ordinary course of business. The Company maintains liability insurance, including product liability coverage, in amounts deemed adequate by management. To date, aggregate costs to the Company for claims, including product liability actions, have not been material. However, an uninsured or partially insured claim, or claim for which indemnification is not available, could have a material adverse effect on the Company’s financial condition or results of operations. The Company believes that there are no claims or litigation pending, the outcome of which could have a material adverse effect on its financial position or results of operations. However, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations for the fiscal period in which such resolution occurred.     15. ACQUISITIONS   All of the following acquisitions, unless otherwise noted, were considered business combinations accounted for under ASC 805 “Business Combinations.” Pro forma information is not included in accordance with ASC 805 since no acquisitions were considered material individually or in the aggregate.   On December 13, 2021, the Company completed the acquisition of certain of the assets of the 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. The Company financed approximately $ 102.0 million of the purchase price under its floor plan and lease and rental truck financing arrangements and the remainder of the purchase price was paid in cash. In addition, the Company purchased certain real property owned by Summit for a purchase price of approximately $ 57.0 million, which was paid in cash.   The purchase price allocation has not yet been finalized related to the Summit acquisition as additional information is expected to be obtained that needs to be evaluated by management, that existed at the time of the acquisition related to property and equipment, inventory and valuation of intangible assets. Management has recorded the purchase price allocations based upon acquired company information that is currently available.   74 Table of Contents   The operations of these acquired locations are included in the accompanying consolidated financial statements from the date of the acquisition. The preliminary purchase price was allocated based on the fair values of the assets and liabilities at the date of acquisition as follows (in thousands):   Goodwill   $ 73,710   Franchise rights     1,581   Inventory     76,078   Property and equipment, including real estate     113,161   Customer deposits     ( 3,359 ) Other     1,156             Total   $ 262,327     The goodwill acquired in the Summit acquisition will be amortized over 15 years for tax purposes.   On November 1, 2021, the Company acquired certain assets of Illinois Truck Centre, Inc., which included real estate and a full-service Hino and Isuzu commercial vehicle dealership in Elk Grove, Illinois. The transaction was valued at approximately $ 2.7 million, with the purchase price paid in cash. The goodwill acquired in the Illinois Truck Centre, Inc. acquisition, which was valued at $ 1.0 million, will be amortized over 15 years for tax purposes.   On October 18, 2021, the Company acquired certain assets of Commercial Engine Service, Inc., which included a long-term lease for a commercial vehicle facility in Victorville, California, along with commercial vehicle parts inventory. The transaction was valued at approximately $ 4.3 million, with the purchase price paid in cash. The goodwill acquired in the Commercial Engine Service, Inc. acquisition, which was valued at $ 3.5 million, will be amortized over 15 years for tax purposes.     16. SEGMENTS :   The Company currently has one reportable business segment - the Truck Segment. The Truck Segment includes the Company’s operation of a nationwide network of commercial vehicle dealerships that provide an integrated one -stop source for the commercial vehicle needs of its customers, including retail sales of new and used commercial vehicles; aftermarket parts, service and collision center facilities; and financial services, including the financing of new and used commercial vehicle purchases, insurance products and truck leasing and rentals. The commercial vehicle dealerships are deemed a single reporting unit because they have similar economic characteristics. The Company’s chief operating decision maker considers the entire Truck Segment, not individual dealerships or departments within its dealerships, when making decisions about resources to be allocated to the segment and assessing its performance.   The Company also has revenues attributable to three other operating segments. These segments include a retail tire company, an insurance agency and a guest ranch operation and are included in the All Other column below. None of these segments has ever met any of the quantitative thresholds for determining reportable segments.   The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating income.   The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. There were no material intersegment sales during the years ended December 31, 2021, 2020 or 2019.   75 Table of Contents   The following table contains summarized information about reportable segment revenue, segment income or loss from continuing operations and segment assets for the periods ended December 31, 2021, 2020 and 2019 (in thousands):       Truck     All               Segment     Other     Totals   2021                         Revenues from external customers   $ 5,109,070     $ 17,072     $ 5,126,142   Interest income     657       –       657   Interest expense     2,119       308       2,427   Depreciation and amortization     53,096       258       53,354   Segment operating income     307,394       1,642       309,036   Segment income from continuing operations before taxes     312,350       1,333       313,683   Segment assets     3,068,365       51,612       3,119,977   Goodwill     367,771       2,560       370,331   Expenditures for segment assets     163,624       3,553       167,177                             2020                         Revenues from external customers   $ 4,721,058     $ 14,882     $ 4,735,940   Interest income     713       –       713   Interest expense     9,444       283       9,727   Depreciation and amortization     57,162       294       57,456   Segment operating income     153,841       764       154,605   Segment income from continuing operations before taxes     151,222       501       151,723   Segment assets     2,939,390       46,003       2,985,393   Goodwill     289,582       2,560       292,142   Expenditures for segment assets     135,956       244       136,200                             2019                         Revenues from external customers   $ 5,794,155     $ 15,692     $ 5,809,847   Interest income     1,680       –       1,680   Interest expense     30,201       286       30,487   Depreciation and amortization     55,036       336       55,372   Segment operating income (loss)     216,691       ( 286 )     216,405   Segment income from continuing operations before taxes     188,122       1,401       189,523   Segment assets     3,369,517       37,812       3,407,329   Goodwill     289,582       2,560       292,142   Expenditures for segment assets     292,980       513       293,493       17. REVENUE :   The Company’s revenues are primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue from such sales is recognized when the customer obtains control, which is typically when the finished product is delivered to the customer. The Company’s material revenue streams have been identified as the following: the sale of new and used commercial vehicles, arrangement of associated commercial vehicle financing and insurance contracts, the performance of commercial vehicle repair services and the sale of commercial vehicle parts. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.     76 Table of Contents   The following table summarizes the Company’s disaggregated revenue by revenue source, excluding lease and rental revenue, for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 ( in thousands):       2021     2020     2019   Commercial vehicle sales revenue   $ 3,039,953     $ 2,863,309     $ 3,757,584   Parts revenue     1,059,382       911,102       993,288   Commercial vehicle repair service revenue     733,981       689,343       769,222   Finance revenue     16,385       12,047       14,618   Insurance revenue     11,579       9,902       9,825   Other revenue     17,628       14,014       17,761   Total   $ 4,878,908     $ 4,499,717     $ 5,562,298     All of the Company's performance obligations are generally transferred to customers at a point in time. The Company did not have any material contract assets or contract liabilities on the balance sheet as of December 31, 2021 or December 31, 2020. Revenues related to commercial vehicle sales, parts sales, commercial vehicle repair service, finance and the majority of other revenues are related to the Truck Segment.   For the sale of new and used commercial vehicles, revenue is recognized at a point in time when control is transferred to the customer, which is when delivery of the commercial vehicle occurs. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the commercial vehicle. When control is transferred to the customer, the Company has an unconditional right to payment and a receivable is recorded for any consideration not received.   The Company controls the commercial vehicle before it is transferred to the customer and it obtains all of the remaining benefits from the commercial vehicle relating to the sale, ability to pledge the asset or hold the asset. The Company is a principal in all commercial vehicle transactions. The Company retains inventory risk, determines the selling price to the customer and delivers the commercial vehicle to the customer. The Company generally pays a commission to internal sales representatives for the sale of a commercial vehicle. The Company will continue to expense the commission and recognize it concurrently with the respective commercial vehicle sale revenue upon delivery of the commercial vehicle to a customer.   Revenue from the sale of parts is recognized when the Company transfers control of the goods to the customer and consideration has been received in the form of cash or a receivable from the customer. The Company provides its customers the right to return certain eligible parts, estimates the expected returns based on an analysis of historical experience and records an allowance for estimated returns, which has historically not been material.   Revenue from the sale of commercial vehicle repair service is recognized when the service performed by the Company on a customer’s vehicle is complete and the customer accepts the repair. Because the Company does not have an enforceable right to payment while the repair is being performed, revenue is recognized when the repair is complete. After a customer’s acceptance, the Company has no remaining obligations to transfer goods or services to the customer and consideration has been received in the form of cash or a receivable from the customer.   Any remaining performance obligations represent service orders for which work has not been completed. The Company’s service contracts are predominantly short-term in nature with a contract term of one month or less. For those contracts, the Company has utilized the practical expedient in Topic 606 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.   The Company receives commissions from third -party lenders for arranging customer financing for the purchase of commercial vehicles. The receipt of such commissions is deemed to be a single performance obligation that is satisfied when a financing agreement is executed and accepted by the financing provider. Once the contract has been accepted by the financing provider, the Company’s performance obligation has been satisfied and the Company generally has no further obligations under the contract. The Company is the agent in this transaction, as it does not have control over the acceptance of the customer’s financing arrangement by the financing provider. Consideration paid to the Company by the financing provider is based on the agreement between the Company and the financing provider.   77 Table of Contents   The Company receives commissions from third -party insurance companies for arranging insurance coverage for customers. The receipt of such commissions is deemed to be a single performance obligation that is satisfied when the insurance coverage is bound. The Company has no further obligations under the contract. The Company is the agent in this transaction because it does not have control over the insurance coverage provided by the insurance carrier. Consideration paid to the Company by the insurance provider is based on the agreement between the Company and the insurance provider.   The Company records revenues from finance and insurance products at the net commission amount, which includes estimates of chargebacks that can occur if the underlying contract is not fulfilled.  Chargeback amounts for commissions from financing companies are estimated assuming financing contracts are terminated before the customer has made six monthly payments.  Chargeback amounts for commissions from insurance companies are estimated assuming insurance contracts are terminated before the underlying insurance contractual term has expired. Chargeback reserve amounts are based on historical chargebacks and have historically been immaterial.  The Company does not have any right to retrospective commissions based on future profitability of finance and insurance contracts arranged.   Other revenue consist mostly of documentation fees that are charged to customers in connection with the sale of a commercial vehicle and recognized as other revenue when a truck is sold. The Company recognizes the documentation fees at the point in time when the commercial vehicle is delivered to the customer.     18. ACCUMULATED OTHER COMPREHENSIVE INCOME :   The following table shows the components of accumulated other comprehensive income (in thousands):   Balance as of December 31, 2020   $ 869   Foreign currency translation adjustment     ( 82 ) Balance as of December 31, 2021   $ 787     The equity method investment in RTC Canada was valued using the exchange rate of one US Dollar to 1.27 Canadian dollars as of December 31, 2021. The adjustment is reflected in Other Assets on the Consolidated Balance Sheet.   78 Table of Contents     Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   None.