What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-05 · 271 added, 537 removed, 578 unchanged (58% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Shares)

September 30,

(In Thousands, Except Shares and Per Share Amounts)

Current assets:

33 unchanged sentences

$ 630,731  

Current maturities of long-term debt

64,854  

141,672  

Current maturities of finance lease obligations

62 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

New and used commercial vehicle sales

Aftermarket products and services sales

Lease and rental sales

Lease and rental

Finance and insurance

3 unchanged sentences

Aftermarket products and services sales

Lease and rental sales

Lease and rental

Total cost of products sold

16 unchanged sentences

Comprehensive

Class A  

Class B  

Capital  

Earnings  

Income  

Balance, December 31, 2021

42,504  

12,470  

$ 437,646  

$ ( 2,879 )  

$ 831,850  

$ 1,268,037  

Stock options exercised and stock awards

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

11,520  

Vesting of restricted share awards

( 6,780 )  

Issuance of common stock under employee stock purchase plan

Common stock repurchases

( 155 )  

( 6,483 )  

Dividend Class A common stock

( 7,684 )  

––

Dividend Class B common stock

( 2,380 )  

––

Other comprehensive income

45,333  

Foreign currency translation adjustment

Balance, March 31, 2022

42,885  

12,660  

$ 449,790  

$ ( 9,362 )  

$ 867,119  

$ 1,124  

$ 1,309,229  

Stock options exercised and stock awards

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

Vesting of restricted share awards

( 614 )  

Common stock repurchases

( 99 )  

( 4,223 )  

Dividend Class A common stock

( 7,735 )  

––

Dividend Class B common stock

( 2,425 )  

––

Other comprehensive income

58,044  

Balance, June 30, 2021

43,104  

12,561  

$ 456,785  

$ ( 13,585 )  

$ 915,003  

$ 1,436  

$ 1,360,199  

Stock options exercised and stock awards

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

Vesting of restricted share awards

( 53 )  

Issuance of common stock under employee stock purchase plan

Common stock repurchases

( 171 )  

( 88 )  

( 11,229 )  

Dividend Class A common stock

( 8,199 )  

––

Dividend Class B common stock

( 2,538 )  

––

Other comprehensive loss

( 471 )  

69,399  

Balance, September 30, 2021

43,018  

12,475  

$ 462,406  

$ ( 24,814 )  

$ 973,665  

$ 1,412,783  

Comprehensive

Class A  

Class B  

Capital  

Earnings  

(Loss)Income  

Balance, December 31, 2020

41,930  

12,361  

$ 397,267  

$ ( 304,129 )  

$ 1,065,553  

$ 1,159,493  

Stock options exercised and stock awards

1 unchanged sentence

Vesting of restricted share awards

( 2,416 )  

Issuance of common stock under employee stock purchase plan

Common stock repurchases

( 833 )  

( 82 )  

( 19,902 )  

Dividend Class A common stock

( 3,646 )  

Dividend Class B common stock

( 1,108 )  

Other comprehensive loss

( 1,930 )  

23,107  

Foreign currency translation adjustment

Balance, March 31, 2021

41,299  

12,616  

$ 406,725  

$ ( 324,031 )  

$ 1,083,906  

$ ( 1,593 )  

$ 1,165,476  

Stock options exercised and stock awards

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

Vesting of restricted share awards

( 28 )  

Dividend Class A common stock

( 3,581 )  

Dividend Class B common stock

( 1,165 )  

Other comprehensive income

16,816  

Balance, June 30, 2020

41,593  

12,616  

$ 414,812  

$ ( 324,031 )  

$ 1,095,976  

$ ( 668 )  

$ 1,186,560  

Stock options exercised and stock awards

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

Vesting of restricted share awards

( 14 )  

Issuance of common stock under employee stock purchase plan

Common stock repurchases

( 95 )  

( 2,749 )  

Cancellation of treasury stock

326,057  

( 326,129 )  

Dividend Class A common stock

( 3,922 )  

Dividend Class B common stock

( 1,258 )  

Other comprehensive income

33,939  

Balance, September 30, 2020

42,208  

12,519  

$ 428,823  

$ ( 723 )  

$ 798,606  

$ ( 180 )  

$ 1,227,073  

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

3 unchanged sentences

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Gain on sale of property and equipment

Stock-based compensation expense related to stock options and employee stock purchases

Deferred income tax benefit

Gain on sale of property and equipment, net

Gain on joint venture transaction

Stock-based compensation expense related to employee stock options and employee stock purchases

Provision for deferred income tax expense

Change in accounts receivable, net

Change in inventories, net

Change in inventories

Change in prepaid expenses and other, net

Change in trade accounts payable

Payments on floor plan notes payable –

Change in customer deposits

4 unchanged sentences

Proceeds from the sale of property and equipment

Change in other assets

Business disposition

Net cash used in investing activities

Cash flows from financing activities:

Payments on floor plan notes payable –

Draws (payments) on floor plan notes payable –

non-trade, net

2 unchanged sentences

Principal payments on finance lease obligations

Proceeds from issuance of shares relating to employee stock options and employee stock purchases

Proceeds from issuance of shares relating to equity awards

Taxes paid related to net share settlement of equity awards

Payments of cash dividends

Common stock repurchased

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net cash provided by (used) in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

2 unchanged sentences

Cash paid during the period for:

Income taxes, net of refunds

Income taxes (refund) paid, net

Noncash investing and financing activities:

13 unchanged sentences

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.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2020 - 04,  

Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting  ("ASU 2020 - 04" ).

In January 2021, the FASB issued Accounting Standards Update No.

2021 - 01,  

Reference Rate Reform (Topic 848 ):

Scope , which clarified the scope and application of the original guidance.

The guidance in these standards applies to contract accounting, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met and provides optional expedients and exceptions for a limited time to ease the potential burden in accounting for reference rate reform.

The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

ASU 2020 - 04 is effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

LIBOR benchmarking is utilized in the Company’s working capital and floorplan facilities.

The Company is in the process of completing its evaluation of the impact, if any, that the adoption of this standard will have on its Consolidated Financial Statements.

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 $ 7.0 million as of September 30, 2021 and 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’

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.

Due to the fact that manufacturer franchise rights are specific to 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

While the COVID- 19 pandemic may not be over, business conditions have improved significantly since the onset of the pandemic in the second quarter of 2020.

However, our industry continues to be impacted by supply chain issues generally attributable to the COVID- 19 pandemic that are negatively affecting new commercial vehicle production and the availability of aftermarket parts.

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 of the COVID- 19 pandemic and its effect on global economic trends and the various supply chains serving the commercial vehicle industry.

Equity Method Investments 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 September 30, 2021, and is reported in Other Assets on the Consolidated Balance Sheet.

The value of the Company’s call option was $ 3.6 million as of March 31, 2022, 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.

3 unchanged sentences

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 September 30, 2021 and December 31, 2020, and is included in the investment in RTC Canada.

As of September 30, 2021, the Company’s investment in RTC Canada is $ 35.1 million.

The Guaranty was valued at $ 5.3 million as of March 31, 2022 and $5.2 million as of December 31, 2021, and is included in the investment in RTC Canada.

As of March 31, 2022, the Company’s investment in RTC Canada is $ 38.7 million.

The Company’s equity income in RTC Canada is included in Other income on the Consolidated Statements of Income.

The total capitalized costs of the Company’s SAP enterprise resource planning software platform (“the ERP Platform”) of $ 5.8 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 $ 0.3 million for the three months ended September 30, 2021 and $ 0.5 million for the three months ended September 30, 2020, and $ 1.2 million for the nine months ended September 30, 2021 and $ 1.4 million for the nine months ended September 30, 2020.

The Company estimates that amortization expense relating to the ERP Platform will be approximately $ 1.5 million in 2021 and $1.2 million per year for the next four years.

On January 3, 2022, a subsidiary of Cummins, Inc.

acquired a 50 % equity interest in Natural Gas Fuel Systems, LLC, which previously conducted business as Momentum Fuel Technologies, from the Company for $ 27.5 million.

The $ 12.5 million gain realized on the transaction is included in Other income on the Consolidated Statements of Income and Comprehensive Income.

The Company is accounting for the business as a joint venture and recognizes the investment using the equity method.

As of March 31, 2022, the Company’s investment in Natural Gas Fuels Systems, LLC is $ 14.9 million.

The Company’s equity income in Natural Gas Fuels Systems, LLC is included in Other income on the Consolidated Statements of Income.

Commitments and Contingencies

1 unchanged sentence

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.

As of March 31, 2022, the Company believes that there are no pending claims or litigation, individually or in the aggregate, that are reasonably likely to 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.

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share information):

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Numerator for basic and diluted earnings per share –

3 unchanged sentences

Effect of dilutive securities–

Employee and director stock options and restricted share awards

Employee stock options and restricted share awards

Denominator for diluted earnings per share –

2 unchanged sentences

Diluted earnings per common share and common share equivalents

Options to purchase shares of common stock that were outstanding for the three months and nine months ended September 30, 2021 and 2020 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):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Weighted average anti-dilutive options

Options to purchase shares of common stock that were outstanding for the three months ended March 31, 2022 and 2021 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):

Anti-dilutive options –

weighted average

Stock Options and Restricted Stock Awards

2 unchanged sentences

Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options, restricted stock unit awards, restricted stock awards and employee stock purchases related to the Employee Stock Purchase Plan, based on estimated fair values.

Stock-based compensation expense, calculated using the Black-Scholes option-pricing model for employee stock options, and included in selling, general and administrative expense, was $ 3.1 million for the three months ended September 30, 2021, and $ 3.3 million for the three months ended September 30, 2020.

Stock-based compensation expense was $ 18.3 million for the nine months ended September 30, 2021, and $ 15.5 million for the nine months ended September 30, 2020.

As of September 30, 2021, the Company had $ 10.3 million of unrecognized compensation expense related to non-vested employee stock options to be recognized over a weighted-average period of 2.3 years and $ 11.0 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.4 years.

Financial Instruments and Fair Value

Stock-based compensation expense, calculated using the Black-Scholes option-pricing model for employee stock options and included in selling, general and administrative expense, was $ 13.8 million for the three months ended March 31, 2022, and $ 11.5 million for the three months ended March 31, 2021.

As of March 31, 2022, the Company had $ 14.3 million of unrecognized compensation cost related to non-vested employee stock options to be recognized over a weighted-average period of 2.6 years and $ 17.0 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.7 years.

Financial Instruments and Fair Value          

The Company measures certain financial assets and liabilities at fair value on a recurring basis.

1 unchanged sentence

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 September 30, 2021, and December 31, 2020.

Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments as of March 31, 2022, and December 31, 2021.

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 rates, credit rating, collateral and liquidity.

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.

12 unchanged sentences

The Company evaluates performance based on income before income taxes, not including extraordinary items.

The following table contains summarized information about reportable segment revenues, segment income or loss from continuing operations and segment assets for the periods ended September 30, 2021 and 2020 (in thousands):

As of and for the three months ended September 30, 2021

As of and for the three months ended March 31, 2022

Revenues from external customers

2 unchanged sentences

Segment assets

For the nine months ended September 30, 2021

Revenues from external customers

Segment operating income

Segment income before taxes

As of and for the three months ended September 30, 2020

As of and for the three months ended March 31, 2021

Revenues from external customers

2 unchanged sentences

Segment assets

For the nine months ended September 30, 2020

Revenues from external customers

Segment operating income

Segment income before taxes

The Company had unrecognized income tax benefits totaling $ 4.5 million as a component of accrued liabilities as of September 30, 2021 and December 31, 2020, the total of which, if recognized, would impact the Company’s effective tax rate.

The Company had unrecognized income tax benefits totaling $ 4.3 million as a component of accrued liabilities as of March 31, 2022 and December 31, 2021, the total of which, if recognized, would impact the Company’s effective tax rate.

An unfavorable settlement may 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.

The Company had approximately $ 150,000 accrued for the payment of interest as of September 30, 2021 and December 31, 2020.

The Company had approximately $ 279,000 accrued for the payment of interest as of March 31, 2022 and December 31, 2021.

No amounts were accrued for penalties.

The Company does not anticipate a significant change in the amount of unrecognized tax benefits in the next 12 months.

As of September 30, 2021, the tax years ended December 31, 2017 through 2020 remained subject to audit by federal tax authorities, and the tax years ended December 31, 2016 through 2020, remained subject to audit by state tax authorities.

As of March 31, 2022, 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 Company’s revenues are primarily generated from the sale of finished products to customers.

3 unchanged sentences

Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.  

The following table summarizes the Company’s disaggregated revenue by revenue source for the three months and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

The following table summarizes the Company’s disaggregated revenue by revenue source, excluding lease and rental revenue, for the three months ended March 31, 2022 and 2021 (in thousands):

March 31, 2022

March 31, 2021

Commercial vehicle sales revenue

5 unchanged sentences

All of the Company's performance obligations and associated revenues 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 September 30, 2021.

Revenues related to commercial vehicle sales, parts sales, commercial vehicle repair service, finance and the majority of the Company’s other revenues are related to the Truck Segment.

The Company did not have any material contract assets or contract liabilities on the balance sheet as of March 31, 2022.

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.

Lease of Vehicles as Lessor

The Company leases commercial vehicles to customers primarily over periods of one to ten years.

The Company primarily leases commercial vehicles that the Company owns to customers primarily over periods of one to ten years.

The Company does not separate lease and nonlease components.

1 unchanged sentence

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 fleet using a straight-line method over each customer’s contractual lease term.

The lease unit is depreciated to a residual value that is the estimated fair value of the lease unit at the expiration of the lease term.

Some leases contain an option for the lessee to purchase the commercial vehicle at the end of the lease term.

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.

1 unchanged sentence

The lessee obtains control of the underlying asset and the Company recognizes sales revenue upon lease commencement.

The receivable for sales-type leases was $ 5.4 million as of September 30, 2021, and $ 5.6 million as of December 31, 2020, and is reflected in Other Assets on the Consolidated Balance Sheet.

Lease and rental income during the three and nine months ended September 30, 2021, and September 30, 2020, consisted of the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

The receivable for sales-type leases as of March 31, 2022 was $ 5.6 million, compared to $ 5.4 million as of December 31, 2021, and is reflected in Other Assets on the Consolidated Balance Sheet.

Lease and rental income during the three months ended March 31, 2022 and March 31, 2021 consisted of the following (in thousands):

March 31, 2022

March 31, 2021

Minimum rental payments

$ 61,998  

$ 50,705  

Nonlease payments

Accumulated Other Comprehensive Income (Loss)

$ 71,335  

$ 58,227  

Accumulated Other Comprehensive Income

The following table shows the components of accumulated other comprehensive income (loss) (in thousands):

2 unchanged sentences

Balance as of March 31, 2022

Foreign currency translation adjustment

Balance as of June 30, 2021

Foreign currency translation adjustment

Balance as of September 30, 2021

The equity method investment in RTC Canada was valued using the exchange rate of one US Dollar equals 1.2648 Canadian dollars as of September 30, 2021.

The equity method investment in RTC Canada was valued using the exchange rate of one US Dollar to 1.2505 Canadian dollars as of March 31, 2022.

The adjustment is reflected in Other Assets on the Consolidated Balance Sheet.

1 unchanged sentence

The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected.

Under Topic 326 :

Under Accounting Standards Update No.

2016 - 13, Financial Instruments —

Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments , 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.

5 unchanged sentences

The following table summarizes the changes in the allowance for credit losses (in thousands):

Provision for

September 30,

December 31, 2021

Provision for the Three Months Ended March 31, 2022

Write offs Against Allowance, net of Recoveries

March 31, 2022

Commercial vehicle receivables

2 unchanged sentences

Other receivables

Asset Purchase Agreement

On September 7, 2021, the Company entered into an Asset Purchase Agreement with certain subsidiaries and affiliates of The Summit Truck Group (“Summit”) to acquire full-service commercial vehicle dealerships and Idealease franchises in Arkansas, Kansas, Mississippi, Missouri, Oklahoma, Tennessee and Texas.

The acquisition includes Summit’s dealerships representing International, IC Bus, Idealease, Isuzu and other commercial vehicle manufacturers.

The Company estimates that the purchase price will be approximately $ 223.0 million, excluding the anticipated purchase of certain real property of the Seller for approximately $ 60.0 million pursuant to one or more real property purchase agreements.

At the closing, the Company anticipates that it will finance approximately $ 114.0 million of the purchase price.

The closing of the transaction, expected in December 2021, is subject to, amongst other things, manufacturers’

approval, various regulatory approvals and the satisfaction of the closing conditions set forth in the asset purchase agreement.

The Company does not expect to ultimately own Summit’s dealerships in Oklahoma or Mississippi.

Lease and Rental Debt

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.

The interest associated with the WF Credit Agreement was $ 1.2  million in the third quarter of 2021 and is recorded in interest expense on the financial statements.

The WF Credit Agreement is a general borrowing facility, whereas prior to the WF Credit Agreement, interest expense associated with the Company’s Idealease lease and rental fleet was recorded in cost of sales as the borrowings were directly related to each lease and rental vehicle.

This change in presentation of interest expense will result in increased gross margins from the Company’s Idealease lease and rental sales.

On December 13, 2021, the Company completed the acquisition of certain of the assets of the 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 for the Summit acquisition.

The Company is currently working with Summit to obtain additional information related to property and equipment, inventory and valuation of intangible assets.

Management has recorded the purchase price allocations based upon currently available information about Summit.

The operations of Summit 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):

$ 73,710  

Franchise rights

76,078  

Property and equipment, including real estate

113,161  

Customer deposits

$ 262,327  

The goodwill acquired in the Summit acquisition will be amortized over 15 years for tax purposes.

Subsequent Event

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.

The interest associated with the PLC Agreement will be recorded in interest expense on the financial statements because the PLC Agreement is a general borrowing facility.

This change in presentation of interest expense will result in increased gross margins from the Company’s PacLease lease and rental sales.

On May 2, 2022, the Company acquired an additional 30 % of RTC Canada for approximately $ 20.0 million, bringing the Company’s total ownership of RTC Canada to 80 %. 

Prior to acquiring the additional 30%, the Company accounted for the equity interest in RTC Canada using the equity method of accounting. 

Going forward, the operating results of RTC Canada will be consolidated in the Consolidated Statements of Operations and Comprehensive Income and the Consolidated Balance Sheets from the date of the acquisition. 

In addition, the operating results of RTC Canada will also be discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s quarterly and annual reports.

Management ’

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is a registered trademark of Ford Motor Company.

is a registered trademark of SAP Aktiengesellschaft.

Cummins ®

is a registered trademark of Cummins, Inc.

This report contains additional trade names or trademarks of other companies.

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Our Rush Truck Centers are principally located in high traffic areas throughout the United States.

Since commencing operations as a Peterbilt heavy-duty truck dealer in 1966, we have grown to operate over 100 Rush Truck Centers in 22 states.

Since commencing operations as a Peterbilt heavy-duty truck dealer in 1966, we have grown to operate over 125 franchised Rush Truck Centers in 23 states.

In 2019, we purchased a 50% equity interest in an entity in Canada, Rush Truck Centres of Canada Limited (“RTC Canada”), which currently owns and operates 15 International dealership locations in Ontario, Canada.

Our business strategy consists of providing solutions to the commercial vehicle industry through our network of commercial vehicle dealerships.

We offer an integrated approach to meeting customer needs by providing service, parts and collision repairs in addition to new and used commercial vehicle sales and leasing, plus financial services, vehicle upfitting, CNG fuel systems and vehicle telematics products. We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers as we expand our product offerings and extend our dealership network through strategic acquisitions of new locations and opening new dealerships to enable us to better serve our customers.

We offer an integrated approach to meeting customer needs by providing service, parts and collision repairs in addition to new and used commercial vehicle sales and leasing, plus financial services, vehicle upfitting, CNG fuel systems through our joint venture with Cummins and vehicle telematics products. We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers as we expand our product offerings and extend our dealership network through strategic acquisitions of new locations and opening new dealerships to enable us to better serve our customers.

COVID-19  

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Impact on Our Business

Our dealership network has remained operational since the beginning of the COVID-19 pandemic.

While the COVID-19 pandemic is not over, business conditions have improved significantly since the second quarter of 2020.

While the COVID-19 pandemic may not be over, business conditions have improved significantly since the onset of the pandemic in the second quarter of 2020.

However, our industry continues to be impacted by supply chain issues generally believed to be attributable to the COVID-19 pandemic that are negatively affecting new commercial vehicle production and the availability of aftermarket parts.

Commercial Vehicle Sales

All of the commercial vehicle manufacturers that we represent resumed operations following any COVID-19 related shutdowns in 2020.

However, supply chain delays related to commercial vehicle components have forced some of the manufacturers we represent to temporarily cease production at times and will limit the commercial vehicle industry’s ability to meet demand for commercial vehicles throughout the remainder of 2021 and into 2022.

The decrease in the supply of new commercial vehicles has resulted in increased demand for used commercial vehicles.

Aftermarket Products and Services

With respect to our parts, service and collision center (collectively, “Aftermarket Products and Services”) departments, with some minor exceptions, our parts supply chain has remained relatively uninterrupted and our parts sales are back to pre-pandemic levels.

We believe that the investments we made over the years with respect to our aftermarket strategic initiatives enabled us to mitigate some of the impact of the COVID-19 pandemic on our Aftermarket Products and Service business.

However, with respect to parts availability going forward, we are dependent on our manufacturers and future production levels of certain parts and components are uncertain at this time.

Although the supply chain disruptions are only impacting a small percentage of the parts we sell, any delay we experience in receiving a part has a corresponding delay in our completion of services on the commercial vehicle for which the part was ordered.

Rental and Leasing Operations

With respect to our rental and leasing operations, in 2020, we allowed certain credit-worthy customers serving industries that were dramatically impacted by the COVID-19 pandemic to skip up to three months of lease payments and either extend the lease term by three months or increase the remaining payments to keep the same lease term. 

These customers have resumed payments.

Revenues from our rental and leasing operations are back to pre-pandemic levels.

As of September 30, 2021, we had $259.7 million in cash.

For further discussion of our liquidity, see the Liquidity and Capital Resources discussion set forth herein.

Research Co., LLC (“A.C.T.

Outlook                   

Research Co., LLC (“A.

Research”), a commercial vehicle industry data and forecasting service provider, currently forecasts new U.S.

Class 8 retail truck sales to be 244,500 units in 2022, which would represent a 7.5% increase compared to 2021.

While demand for new commercial vehicles is currently strong, we believe that component supply chain issues will continue to delay production, pushing new Class 8 truck deliveries into 2022, and negatively impacting our new Class 8 truck sales in the fourth quarter of this year.

In addition, we have been informed by our manufacturers that production of commercial vehicles in 2022 will be allocated to all of their dealers based on historical purchases.

While we do not yet know our allocation for 2022, we believe that our allocation of commercial vehicles will not be less than the number of commercial vehicles we expect to sell in 2021.

We expect our market share of new Class 8 truck sales to range between 5.8% and 6.1% in 2022.

This market share percentage would result in the sale of approximately 11,400 to 11,900 of new Class 8 trucks in 2021, based on A.C.T.

This market share percentage would result in the sale of approximately 14,300 to 15,000 new Class 8 trucks in 2022, based on A.C.T.

Research’s current U.S.

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With respect to new U.S.

Class 4 through 7 retail commercial vehicle sales, A.C.T.

Research currently forecasts sales to be 251,000 units in 2021, which would represent an 8.2% increase compared to 2020. 

Class 4-7 retail commercial vehicle sales, A.C.T.

Research currently forecasts sales to be 263,200 units in 2022, which would represent a 5.6% increase compared to 2021. 

We expect our market share of new Class 4 through 7 commercial vehicle sales to range between 4.0% and 4.2% in 2022.

This market share percentage would result in the sale of approximately 10,000 to 10,800 of new Class 4 through 7 commercial vehicles in 2021, based on A.C.T.

This market share percentage would result in the sale of approximately 10,500 to 11,000 new Class 4 through 7 commercial vehicles in 2022, based on A.C.T.

Research’s current U.S.

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We expect lease and rental revenue to increase 25% to 30% during 2022, compared to 2021.

While parts supply chain constraints are expected to negatively impact the Aftermarket Products and Services industry for the remainder of 2021, we do not believe these constraints will have a significant overall effect on our Aftermarket Products and Services revenues.

We believe our Aftermarket Products and Services revenues will increase 20% to 25% in 2022, compared to 2021.

In October 2021, we acquired an independent parts and service facility in Victorville, California that will be converted into a full service Peterbilt dealership.

We also plan to acquire a full-service Hino and Isuzu dealership in Elk Grove, Illinois in November 2021.

Additionally, on September 7, 2021, we entered into an agreement with certain subsidiaries and affiliates of The Summit Truck Group (“Summit”) to acquire full-service commercial vehicle dealerships and Idealease franchises in Arkansas, Kansas, Mississippi, Missouri, Oklahoma, Tennessee and Texas.

The acquisition includes Summit’s dealerships representing International, IC Bus, Idealease, Isuzu and other commercial vehicle manufacturers.

The closing of the transaction is subject to, amongst other things, manufacturers’

approval, various regulatory approvals and the satisfaction of the closing conditions set forth in the asset purchase agreement, but we expect the transaction to close in December 2021.

We do not expect to ultimately own Summit’s dealerships in Oklahoma or Mississippi.

The above projections for new commercial vehicle sales will depend on our ability to obtain commercial vehicles from the manufacturers we represent based on allocations from the manufacturers and supply chain issues affecting manufacturers.

In addition, we are beginning to see elevated fuel prices and lower spot market rates and believe inflation and rising interest rates may begin to negatively impact consumer spending and capital expenditures across a variety of industries we support.

We are monitoring these and other economic factors that may impact industry demand moving forward.

However, with the ongoing integration of our strategic initiatives into our newly acquired dealership locations, and our continued disciplined approach to expense management, we believe our financial results will continue to be strong in 2022.

In addition, all of the above projections for new commercial vehicle sales, lease and rental revenues and Aftermarket Products and Services revenues include the dealership and Idealease locations that we acquired on December 13, 2021, when we 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 “Summit Acquisition”).

The Summit Acquisition included Summit’s dealerships representing International, IC Bus, Idealease, Isuzu and other commercial vehicle manufacturers.

Critical Accounting Policies and Estimates

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An allowance is provided when it is anticipated that cost will exceed net realizable value less a reasonable profit margin.

Goodwill is tested for impairment by reporting unit utilizing a two-step process at least annually, or more frequently when events or changes in circumstances indicate that the asset might be impaired.

The first step requires us to compare the fair value of the reporting unit (we consider our Truck Segment to be a reporting unit for purposes of this analysis), which is the same as the segment, to the respective carrying value.

If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired.

If the carrying value is greater than the fair value, there is an indication that impairment may exist and a second step is required.

In the second step of the analysis, the implied fair value of the goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities.

If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.

We determine the fair value of our reporting unit using the discounted cash flow method.

The discounted cash flow method uses various assumptions and estimates regarding revenue growth rates, future gross margins, future selling, general and administrative expenses and an estimated weighted average cost of capital.

The analysis is based upon available information regarding expected future cash flows of each reporting unit discounted at rates consistent with the cost of capital specific to the reporting unit.

This type of analysis contains uncertainties because it requires us to make assumptions and to apply judgment regarding our knowledge of our industry, information provided by industry analysts and our current business strategy in light of present industry and economic conditions.

If any of these assumptions change, or fail to materialize, the resulting decline in our estimated fair value could result in a material impairment charge to the goodwill associated with the reporting unit.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we used to test for impairment losses on goodwill.

However, if actual results are not consistent with our estimates or assumptions, or certain events occur that might adversely affect the reported value of goodwill in the future, we may be exposed to an impairment charge that could be material.

Goodwill was tested for impairment during the fourth quarter of 2020 and no impairment was required.

The fair value of our reporting unit exceeded the carrying value of its net assets.

As a result, we were not required to conduct the second step of the impairment test.

We do not believe our reporting unit is at risk of failing step one of the impairment test.

Purchase Price Allocation, Intangible Assets and Goodwill

Purchase price allocation for business combinations and asset acquisitions requires the use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values.

We determine whether substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.

If so, the single asset or group of assets, as applicable, is not a business.

If not, we determine whether the single asset or group of assets, as applicable, meets the definition of a business.

In connection with our business combinations, we recorded certain intangible assets, including franchise rights.

We periodically review the estimated useful lives and fair values of our identifiable intangible assets, taking into consideration any events or circumstances that might result in a diminished fair value or revised useful life.

The excess purchase price over the fair value of assets acquired is recorded as goodwill.

We test goodwill for impairment annually in the fourth quarter, or whenever events or changes in circumstances indicate an impairment may have occurred.

Because we operate a single reporting unit, the Truck Segment, the impairment test is performed at that level by comparing the estimated fair value of the reporting unit to the carrying value of the reporting unit.

We estimate the fair value of the reporting unit using a "step one" analysis utilizing a fair-value-based approach that uses a discounted cash flow analysis of projected future results to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

Determining the fair value of goodwill is subjective in nature and often involves the use of estimates and assumptions including, without limitation, use of estimates of future prices and volumes for our products, capital needs, economic trends and other factors which are inherently difficult to forecast.

If actual results, or the plans and estimates used in future impairment analyses are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges in a future period.

The annual impairment test was performed in the fourth quarter of 2021.

No impairment of goodwill was identified during 2021 and no circumstances or events occurred in the first quarter of 2022 that would require a test for impairment.

Insurance Accruals

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Revenue Recognition

Effective January 1, 2018, we adopted ASU 2014-09, “

We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.  To determine revenue recognition for arrangements that we determine are within the scope of ASU 2014-09, “

Revenue from Contracts with Customers ( “

Topic 606 ”

using the modified retrospective transition method. 

This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.  Under Topic 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.  To determine revenue recognition for arrangements that we determine are within the scope of Topic 606, we perform the following five steps:

) , we perform the following five steps:

(i) identify the contract with a customer;

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receivables, parts and service receivables, leasing receivables and other trade receivables).

For trade receivables, we use the probability of default and our historical loss experience rates by portfolio and apply them to a related aging analysis while also considering customer and/or economic risk where appropriate.

Determination of the proper amount of allowances by portfolio requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings.

Determination of the proper amount of allowances by portfolio requires us to exercise our judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings.

The allowances take into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, collection experience, current economic conditions, estimates for supportable forecasts (when appropriate) and credit risk characteristics.

Results of Operations

The following discussion and analysis includes our historical results of operations for the three months and nine months ended September 30, 2021 and 2020.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

The following discussion and analysis includes our historical results of operations for the three months ended March 31, 2022 and 2021.

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

Three Months Ended March 31,

New and used commercial vehicle sales

Aftermarket products and services sales

Lease and rental sales

Parts and service sales

Lease and rental

Finance and insurance

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Gross Profit:

New and used commercial vehicle sales

Aftermarket products and services sales

Parts and service sales

Lease and rental

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Total gross profit

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

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Vehicle unit sales:

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Other vehicle revenues:

Absorption ratio:

Dealership absorption ratio:

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

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When 100% absorption is achieved, all of the gross profit from the sale of a commercial vehicle, after sales commissions and inventory carrying costs, directly impacts operating profit.

Our commercial vehicle dealerships achieved a 134.0% absorption ratio for the third quarter of 2021 compared to a 119.4% absorption ratio for the third quarter of 2020.

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Total revenues increased $88.0 million, or 7.5%, in the third quarter of 2021, compared to the third quarter of 2020.

Our Aftermarket Products and Services revenues totaled $463.0 million in the third quarter of 2021, up 15.7% from the third quarter of 2020.

This increase was primarily due to the overall continued recovery of the national economy and strong demand for aftermarket parts and services.

Revenues from sales of new and used commercial vehicles increased $17.6 million, or 2.5%, in the third quarter of 2021, compared to the third quarter of 2020.

This increase was also primarily due to the continued recovery of the national economy, which has led to strong freight rates throughout the country and strong demand for commercial vehicles.

We sold 2,537 new Class 8 trucks in the third quarter of 2021, a 1.8% decrease compared to 2,584 new Class 8 trucks sold in the third quarter of 2020.

Our new Class 8 truck sales were negatively impacted by industry-wide new truck production constraints.

According to A.C.T.

Research, retail sales in the U.S.

Class 8 truck market increased 2.5% in the third quarter of 2021, compared to the third quarter of 2020.

We sold 2,792 new Class 4 through 7 medium-duty commercial vehicles, including 410 buses, in the third quarter of 2021, a 5.1% decrease compared to 2,941 new medium-duty commercial vehicles, including 429 buses, in the third quarter of 2020.

Our third quarter 2021 new Class 4 through 7 commercial vehicle sales were negatively impacted by industry-wide new truck production constraints.

Research estimates that unit sales of new Class 4 through 7 commercial vehicles in the U.S.

decreased approximately 2.2% in the third quarter of 2021, compared to the third quarter of 2020.

We sold 361 light-duty vehicles in the third quarter of 2021, a 27.6% increase compared to 283 light-duty vehicles sold in the third quarter of 2020.

We sold 1,712 used commercial vehicles in the third quarter of 2021, a 16.7% decrease compared to 2,055 used commercial vehicles in the third quarter of 2020.

Demand for used commercial vehicles remained strong in the third quarter of 2021, driven in large part by production delays for new Class 8 trucks, however, the number of used commercial vehicles we will be able to sell depends on our ability to acquire quality used commercial vehicle inventory.

We believe used truck values will decrease when new truck production increases;

however, we believe demand for used trucks will remain strong through 2021 and into 2022.

Commercial vehicle lease and rental revenues increased $4.8 million, or 8.2%, in the third quarter of 2021, compared to the third quarter of 2020.

The increase is primarily due to increased rental fleet utilization and strong demand for vehicles to lease, which is partly due to the limited supply of new commercial vehicles.

Finance and insurance revenues increased $1.2 million, or 21.6%, in the third quarter of 2021, compared to the third quarter of 2020.

We expect finance and insurance revenues to fluctuate proportionately with our new and used commercial vehicle sales in 2021.

Our commercial vehicle dealerships achieved a 136.3% absorption ratio for the first quarter of 2022, compared to a 122.6% absorption ratio for the first quarter of 2021.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Total revenues increased $331.4 million, or 26.9%, in the first quarter of 2022, compared to the first quarter of 2021.

This increase was primarily the result of continued recovery of the national economy, strong demand for new and used commercial vehicle and the Summit Acquisition, which increased revenues across all areas of our business.

Our Aftermarket Products and Services revenues increased $127.5 million, or 30.7%, in the first quarter of 2022, compared to the first quarter of 2021.

Our Aftermarket Parts and Services continue to benefit from a strong national economy.

Revenues from sales of new and used commercial vehicles increased $188.0 million, or 25.1%, in the first quarter of 2022, compared to the first quarter of 2021.

The strong national economy, which led to historically high freight rates throughout the country, continues to maintain strong demand for commercial vehicles.

We sold 3,528 new Class 8 trucks in the first quarter of 2022, a 17.8% increase compared to 2,995 new Class 8 trucks in the first quarter of 2021.

This increase in new Class 8 truck sales was primarily a result of the Summit Acquisition.

We sold 2,141 new Class 4 through 7 commercial vehicles, including 193 buses, in the first quarter of 2022, a 8.3% decrease compared to 2,334 new medium-duty commercial vehicles, including 140 buses, in the first quarter of 2021.

Our new Class 4 through 7 commercial vehicle sales were negatively impacted by new commercial vehicle production constraints that affected the manufacturers we represent.

We sold 481 new light-duty vehicles in the first quarter of 2022, a 21.8% increase compared to 395 new light-duty vehicles in the first quarter of 2021.

Our light-duty vehicle sales benefited from the increased demand for light-duty vehicles in the U.S.

We sold 2,395 used commercial vehicles in the first quarter of 2022, a 24.5% increase compared to 1,924 used commercial vehicles in the first quarter of 2021.

Demand for used commercial vehicles remained strong in the first quarter of 2022.

However, the number of used commercial vehicles we will be able to sell in 2022 depends on our ability to acquire quality used commercial vehicle inventory.

We believe used truck demand and values will decrease when new truck production increases to a level adequate to meet customer demand;

however, we believe demand for used trucks will remain strong throughout 2022.

Commercial vehicle lease and rental revenues increased $13.1 million, or 22.5%, in the first quarter of 2022, compared to the first quarter of 2021.

The increase was partly due to increased rental fleet utilization and strong demand for vehicles to lease, which was impacted by the limited supply of new commercial vehicles.

Finance and insurance revenues increased $1.1 million, or 16.4%, in the first quarter of 2022, compared to the first quarter of 2021.

The increase in finance and insurance revenues was partially due to sales of finance and insurance products to a higher percentage of new and used commercial vehicle purchasers in the first quarter of 2022.

Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of our operating profits.

Gross profit increased $69.8 million, or 32.9%, in the third quarter of 2021, compared to the third quarter of 2020.

Gross profit as a percentage of sales increased to 22.3% in the third quarter of 2021, from 18.0% in the third quarter of 2020.

This increase in gross profit as a percentage of sales is a result of widespread increased gross margins across all of our operations.

Gross margins from our Aftermarket Products and Services operations increased to 39.3% in the third quarter of 2021, from 35.4% in the third quarter of 2020, which is primarily related to the increase in parts rebates from parts suppliers and increases in parts list pricing by the manufacturers we represent, which lead to increased margins on parts sales with respect to inventory acquired prior to the manufacturers’

price increases, compared to the third quarter of 2020.

Gross profit for the Aftermarket Products and Services departments increased to $182.2 million in the third quarter of 2021, from $141.9 million in the third quarter of 2020.

Other income increased $1.7 million, or 46.5%, in the first quarter of 2022, compared to the first quarter of 2021.

Other income consists primarily of document fees related to commercial vehicle sales.

Gross profit increased $100.6 million, or 41.1%, in the first quarter of 2022, compared to the first quarter of 2021.

Gross profit as a percentage of sales increased to 22.1% in the first quarter of 2022, from 19.9% in the first quarter of 2021.

This increase in gross profit as a percentage of sales is a result of increased gross margins related to new and used commercial vehicle sales and an increase in Aftermarket Products and Services as a percentage of our overall product sales mix.

Gross margins from our Aftermarket Products and Services operations increased to 38.5% in the first quarter of 2022, compared to 37.0% in the first quarter of 2021.

This increase is primarily related increases in parts pricing and increases in parts rebates from parts suppliers.

Gross profit from our Aftermarket Products and Services operations increased to $209.1 million in the first quarter of 2022, from $153.9 million in the first quarter of 2021.

Historically, gross margins on parts sales range from 28% to 30% and gross margins on service and collision center operations range from 66% to 68%.

Gross profits from parts sales represented 62.4% of total gross profit for Aftermarket Products and Services operations in the third quarter of 2021 and 58.8% in the third quarter of 2020.

Service and collision center operations represented 37.6% of total gross profit for Aftermarket Products and Services operations in the third quarter of 2021 and 41.2% in the third quarter of 2020.

Gross margins on new Class 8 truck sales increased to 8.7% in the third quarter of 2021, from 7.8% in the third quarter of 2020.

This increase is primarily due to strong demand for Class 8 trucks and the mix of purchasers during the third quarter of 2021.

In 2021, we expect overall gross margins from new Class 8 truck sales of approximately 8.0% to 9.0%.

Gross margins on new Class 4 through 7 commercial vehicle sales increased to 8.0% in the third quarter of 2021, from 5.9% in the third quarter of 2020.

This increase is primarily due to the mix of purchasers during the third quarter of 2021.

Gross profits from parts sales represented 62.5% of total gross profit for Aftermarket Products and Services operations in the first quarter of 2022 and 59.5% in the first quarter of 2021.

Service and collision center operations represented 37.5% of total gross profit for Aftermarket Products and Services operations in the first quarter of 2022 and 40.5% in the first quarter of 2021.

We expect blended gross margins on Aftermarket Products and Services operations to range from 37.5% to 38.5% in 2022.

Gross margins on new Class 8 truck sales increased to 9.7% in the first quarter of 2022, from 8.9% in the first quarter of 2021.

This increase is primarily due to strong demand for new Class 8 trucks and the mix of purchasers during the first quarter of 2022.

In 2022, we expect overall gross margins from new heavy-duty truck sales of approximately 8.0% to 9.5%.

Gross margins on new Class 4 through 7 commercial vehicle sales increased to 8.6% in the first quarter of 2022, from 7.1% in the first quarter of 2021.

This increase is primarily due to the mix of purchasers during the first quarter of 2022 and strong demand for new Class 4 through 7 commercial vehicles.

For 2022, we expect overall gross margins from new medium-duty commercial vehicle sales of approximately 7.5% to 8.5%, but this will largely depend upon the mix of purchasers and types of vehicles sold.

Gross margins on used commercial vehicle sales increased to 19.7% in the third quarter of 2021, from 12.0% in the third quarter of 2020.

This increase in margins in the third quarter of 2021 was primarily due to the increase in used truck values due to strong demand for used commercial vehicles.

The lower margins that we recognized in 2020 were due to weak demand for used trucks in early 2020 caused by the beginning of the COVID-19 pandemic and the write-down of used truck inventory values to account for extremely weak market conditions at that time.

We expect margins on used commercial vehicles to be approximately 12% to 16% for the remainder of 2021.

Gross margins from truck lease and rental sales increased to 25.1% in the third quarter of 2021, from 14.4% in the third quarter of 2020.

Gross margins on used commercial vehicle sales decreased to 15.9% in the first quarter of 2022, from 18.1% in the first quarter of 2021.

This decrease is primarily due to a softening in used truck values as new Class 8 vehicle production begins to increase.

We expect margins on used commercial vehicles to gradually decrease throughout 2022 as new commercial vehicle production increases and reach their historical range between 8.0% and 10.0% by the end of 2022.

Gross margins from truck lease and rental sales increased to 31.9% in the first quarter of 2022, from 17.5% in the first quarter of 2021.

This increase is primarily related to increased rental fleet utilization and changes to the way we finance commercial vehicles for our lease and rental fleet.

In the third quarter of 2021, we entered into a credit agreement with Wells Fargo Bank, N.A.

in the amount of $250.0 million (the “WF Credit Agreement”) that allows us to finance a portion of our Idealease lease and rental fleet through a general borrowing facility.

The interest associated with the WF Credit Agreement is recorded in interest expense on the financial statements and was $1.2 million in the third quarter of 2021.

Prior to the WF Credit Agreement, interest expense associated with our Idealease lease and rental fleet was recorded in cost of sales as the borrowings were directly related to each lease and rental vehicle.

This change in presentation of interest expense will result in increased gross margins from our Idealease truck lease and rental sales.

In October of 2021, we entered into a similar credit agreement with PACCAR Leasing Company (“PLC”) in the amount of $300.0 million for our PacLease lease and rental fleet.

In September of 2021, we 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”) that allows us to finance a portion of our Idealease lease and rental fleet through a general borrowing facility.

In October of 2021, we entered into that certain Amended and Restated Inventory Financing and Purchase Money Security Agreement with PLC, a division of PACCAR Financial Corp.

(the “PLC Agreement”) in the amount of $300.0 million to be used in connection with the acquisition of PacLease lease and rental fleet vehicles.

The interest associated with the WF Credit Agreement and the PLC Agreement is recorded in interest expense on the Consolidated Statement of Income.

Prior to the WF Credit Agreement and the PLC Agreement, interest expense associated with our lease and rental fleet purchases was recorded in cost of sales because each borrowing was directly related to each lease and rental vehicle purchased.

This change in the structure of financing of our lease and rental fleet results in increased gross margins from our commercial vehicle lease and rental sales.

We expect gross margins from lease and rental sales of approximately 31.0% to 33.0% during 2022.

Our policy is to depreciate our lease and rental fleet using a straight-line method over each customer’s contractual lease term.

Each lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term.

The lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term.

This policy results in us realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term.

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Selling, General and Administrative Expenses

Selling, General and Administrative (“SG&A”) expenses increased $24.4 million, or 15.7%, in the third quarter of 2021, compared to the third quarter of 2020.

This increase resulted from increased personnel expense and increased selling expense, compared to 2020.

SG&A expenses as a percentage of total revenues increased to 14.2% in the third quarter of 2021, from 13.2% in the third quarter of 2020.

Annual SG&A expenses as a percentage of total revenues have ranged from 12.4% to 14.0% over the last five years.

For 2021, we expect SG&A expenses as a percentage of total revenues to range from 13.0% to 14.0%, due to the increase in revenues from sales of new and used commercial vehicles and Aftermarket Products and Services.

For 2021, we expect the selling portion of SG&A expenses to be approximately 25.0% to 30.0% of new and used commercial vehicle gross profit.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased $1.3 million, or 8.9%, in the third quarter of 2021, compared to the third quarter of 2020.

Selling, General and Administrative (“SG&A”) expenses increased $49.5 million, or 28.3%, in the first quarter of 2022, compared to the first quarter of 2021.

This increase primarily resulted from increased personnel expense and increased selling expense, compared to the first quarter of 2021, and in addition, increased general and administrative expense associated with the Summit Acquisition.

SG&A expenses as a percentage of total revenues increased to 14.4% in the first quarter of 2022, from 14.2% in the first quarter of 2021.

Annual SG&A expenses as a percentage of total revenues have ranged from approximately 12.4% to 14.3% over the last five years.

In general, when new and used commercial vehicle revenues decrease as a percentage of total revenues, SG&A expenses as a percentage of total revenues will be at the higher end of this range.

For 2022, we expect SG&A expenses as a percentage of total revenues to range from 13.0% to 14.0%, due to the increase in revenues from sales of new and used commercial vehicles and Aftermarket Products and Services revenues.

We expect the selling portion of SG&A expenses to be approximately 25.0% to 30.0% of new and used commercial vehicle gross profit.

Interest Expense, Net

Net interest expense decreased $0.8 million, or 74.3%, in the third quarter of 2021, compared to the third quarter of 2020.

This decrease was primarily due to the decrease in floorplan liability related to lower commercial vehicle inventory levels, the product mix of our commercial vehicle inventory and the reduction in our real estate debt.

During the third quarter of 2021, a higher portion of our vehicle inventory was from commercial vehicle manufacturers that were offering more favorable floorplan terms than in the third quarter of 2020.

Net interest expense increased $0.7 million, or 140.4%, in the first quarter of 2022, compared to the first quarter of 2021.

This increase in interest expense is a result of the increase in inventory levels compared to 2021.

We expect net interest expense in 2022 to increase due to interest related to lease and rental borrowings, but the amount of the increase will depend on inventory levels, interest rate fluctuations and the amount of cash available to make prepayments on our floor plan arrangements.

Income before Income Taxes

As a result of the factors described above, income before income taxes increased $47.9 million, or 109.1%, in the third quarter of 2021, compared to the third quarter of 2020.

Income taxes increased $12.5 million, or 124.7%, in the third quarter of 2021, compared to the third quarter of 2020.

We provided for taxes at a 24.75% effective rate in the third quarter of 2021 and 22.7% in the third quarter of 2020.

As a result of the factors described above, income from continuing operations before income taxes increased $63.7 million, or 112.5%, in the first quarter of 2022, compared to the first quarter of 2021.

Income taxes increased $16.6 million, or 146.7%, in the first quarter of 2022, compared to the first quarter of 2021.

We provided for taxes at a 23.2% effective rate in the first quarter of 2022 and 20.0% in the first quarter of 2021.

The tax rate in the first quarter of 2021 was primarily impacted by the tax benefit related to the gain associated with vesting and exercise of equity awards granted through our long-term incentive plan.

We expect our effective tax rate to be approximately 23.0% to 24.0% of pretax income in 2022.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Unless otherwise stated below, our variance explanations and future expectations with regard to the items discussed in this section are set forth in the discussion of the Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020.

Total revenues increased $346.6 million, or 10.0%, in the first nine months of 2021, compared to the first nine months of 2020.

Aftermarket Products and Services revenues increased $118.5 million, or 9.8%, in the first nine months of 2021, compared to the first nine months of 2020.

Revenues from the sales of new and used commercial vehicles increased $214.0 million, or 10.4%, in the first nine months of 2021, compared to the first nine months of 2020.

We sold 8,486 new Class 8 heavy-duty trucks during the first nine months of 2021, a 12.7% increase compared to 7,528 new Class 8 heavy-duty trucks in the first nine months of 2020.

According to A.C.T.

Research, new U.S.

Class 8 truck sales increased 22.6% in the first nine months of 2021, compared to the first nine months of 2020.

We sold 7,951 new Class 4 through 7 medium-duty commercial vehicles, including 788 buses, during the first nine months of 2021, a 6.9% decrease compared to 8,538 new Class 4 through 7 medium-duty commercial vehicles, including 853 buses, in the first nine months of 2020.

New Class 4 through 7 commercial vehicle sales in the first nine months of 2021 were negatively impacted by new truck production constraints on the manufacturers we represent.

Research estimates that unit sales of new Class 4 through 7 commercial vehicles, including buses, in the U.S increased approximately 11.6% in the first nine months of 2021, compared to the first nine months of 2020.

We sold 1,228 new light-duty commercial vehicles during the first nine months of 2021, a 52.7% increase compared to 804 light-duty commercial vehicles in the first nine months of 2020.

We sold 5,730 used commercial vehicles during the first nine months of 2021, a 6.5% increase compared to 5,381 used commercial vehicles in the first nine months of 2020.

Truck lease and rental revenues increased $6.3 million, or 3.6%, in the first nine months of 2021, compared to the first nine months of 2020.

Finance and insurance revenues increased $5.7 million, or 37.6%, in the first nine months of 2021, compared to the first nine months of 2020.

Gross profit increased $158.6 million, or 24.8%, in the first nine months of 2021, compared to the first nine months of 2020.

Gross profit as a percentage of sales increased to 20.9% in the first nine months of 2021, from 18.4% in the first nine months of 2020.

Gross margins from our Aftermarket Products and Services operations increased to 38.1% in the first nine months of 2021, from 36.4% in the first nine months of 2020.

Gross profit for the Aftermarket Products and Services departments was $504.5 million in the first nine months of 2021, compared to $438.8 million in the first nine months of 2020.

Gross profits from parts sales represented 61.0% of total gross profit for Aftermarket Products and Services operations in the first nine months of 2021 and 59.3% in the first nine months of 2020.

Service and collision center operations represented 39.0% of total gross profit for Aftermarket Products and Services operations in the first nine months of 2021 and 40.7% in the first nine months of 2020.

Gross margins on new Class 8 truck sales were 8.9% in the first nine months of 2021 and 8.1% in the first nine months of 2020.

Gross margins on new Class 4 through 7 medium-duty commercial vehicle sales increased to 7.5% in the first nine months of 2021, from 6.0% in the first nine months of 2020.

Gross margins on used commercial vehicle sales increased to 18.4% in the first nine months of 2021, from 8.0% in the first nine months of 2020.

Gross margins from truck lease and rental sales increased to 21.3% in the first nine months of 2021, from 12.9% in the first nine months of 2020.

Selling, General and Administrative Expenses

SG&A expenses increased $42.8 million, or 8.6%, in the first nine months of 2021, compared to the first nine months of 2020.

SG&A expenses equaled 14.2% of total revenue in the first nine months of 2021, and 14.3% in the first nine months of 2020.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased $3.0 million, or 6.9%, in the first nine months of 2021, compared to the first nine months of 2020.

Interest Expense, Net

Net interest expense decreased $7.5 million, or 93.0%, in the first nine months of 2021, compared to the first nine months of 2020.

Income before Income Taxes

Income before income taxes increased $125.1 million, or 127.5%, in the first nine months of 2021, compared to the first nine months of 2020.

Provision for Income Taxes

Income taxes increased $26.2 million, or 108.1%, in the first nine months of 2021, compared to the first nine months of 2020.

We provided for taxes at a 23.0% rate in the first nine months of 2021 and a 24.7% rate in the first nine months of 2020.

Liquidity and Capital Resources

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Historically, these cash requirements have been met through the retention of profits, borrowings under our floor plan arrangements and bank financings.

As of September 30, 2021, we had working capital of approximately $405.3 million, including $259.7 million in cash, available to fund our operations.

As of March 31, 2022, we had working capital of approximately $394.9 million, including $209.5 million in cash, available to fund our operations.

We believe that these funds, together with expected cash flows from operations, are sufficient to meet our operating requirements for at least the next twelve months.

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(“BMO Harris”) (the “Floor Plan Credit Agreement”), and the resulting interest earned is recognized as an offset to our gross interest expense under the Floor Plan Credit Agreement.

We continually evaluate our liquidity and capital resources based upon:

(i) our cash and cash equivalents on hand;

(ii) the funds that we expect to generate through future operations;

(iii) current and expected borrowing availability under our secured line of credit, working capital lines of credit available under certain of our credit agreements and our Floor Plan Credit Agreement;

and (iv) the potential impact of our capital allocation strategy and any contemplated or pending future transactions, including, but not limited to, acquisitions, equity repurchases, dividends, or other capital expenditures.

We believe we will have sufficient liquidity to meet our debt service and working capital requirements, commitments and contingencies, debt repayments, acquisitions, capital expenditures and any operating requirements for at least the next twelve months.

We have a secured line of credit that provides for a maximum borrowing of $15.0 million.

There were no advances outstanding under this secured line of credit at September 30, 2021, however, $11.9 million was pledged to secure various letters of credit related to self-insurance products, leaving $3.1 million available for future borrowings as of September 30, 2021.

There were no advances outstanding under this secured line of credit on March 31, 2022, 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 March 31, 2022.

Our long-term debt, floor plan financing agreements and the WF Credit Agreement require us to satisfy various financial ratios such as the leverage ratio, the asset coverage ratio and the fixed charge coverage ratio.

As of September 30, 2021, we were in compliance with all debt covenants related to debt secured by lease and rental units, our floor plan credit agreements and the WF Credit Agreement.

As of March 31, 2022, we were in compliance with all debt covenants related to debt secured by lease and rental units, our floor plan credit agreements and the WF Credit Agreement.

We do not anticipate any breach of the covenants in the foreseeable future.

We expect to purchase or lease commercial vehicles worth approximately $150.0 million to $170.0 million for our leasing operations during 2022, depending on customer demand, most of which will be financed.

We also expect to make capital expenditures for recurring items such as computers, shop tools and equipment and vehicles of approximately $30.0 million to $35.0 million during 2021.

During the third quarter of 2021, we paid a cash dividend of $10.6 million.

Additionally, on October 20, 2021, our Board of Directors declared a cash dividend of $0.19 per share of Class A and Class B Common Stock, to be paid on December 10, 2021, to all shareholders of record as of November 8, 2021.

We also expect to make capital expenditures for the purchase of recurring items such as computers, shop tools and equipment and company vehicles of approximately $35.0 million to $40.0 million during 2022.

During the first quarter of 2022, we paid a cash dividend of $11.1 million.

Additionally, on April 26, 2022, our Board of Directors declared a cash dividend of $0.19 per share of Class A and Class B Common Stock, to be paid on June 10, 2022, to all shareholders of record as of May 12, 2022.

The total dividend disbursement is estimated at approximately $10.5 million.

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However, there is no assurance as to future dividends because the declaration and payment of such dividends is subject to the business judgment of our Board of Directors and will depend on historic and projected earnings, capital requirements, covenant compliance and financial conditions and such other factors as our Board of Directors deem relevant.

On December 8, 2020, we announced that our Board of Directors approved a new stock repurchase program authorizing management to repurchase, from time to time, up to an aggregate of $100.0 million of our shares of Class A Common Stock and/or Class B Common Stock.

On November 30, 2021, we announced that our Board of Directors approved a new stock repurchase program authorizing management to repurchase, from time to time, up to an aggregate of $100.0 million of our shares of Class A Common Stock and/or Class B Common Stock.

In connection with the adoption of the new stock repurchase plan, we terminated the prior stock repurchase plan, which was scheduled to expire on December 31, 2021.

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The actual timing, number and value of repurchases under the stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including market conditions, stock price and other factors, including those related to the ownership requirements of our dealership agreements with Peterbilt.

As of September 30, 2021, we had repurchased $23.8 million of our shares of common stock under the current stock repurchase program.

As of March 31, 2022, we had repurchased $20.2 million of our shares of common stock under the current stock repurchase program.

The current stock repurchase program expires on December 31, 2022, and may be suspended or discontinued at any time.

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We have the ability to fund the construction or purchase of new facilities through our operating cash flows or by financing.

On September 7, 2021, we entered into an Asset Purchase Agreement to acquire substantially all of the assets and assume certain liabilities of Summit Truck Group, LLC, a Texas limited liability company, and certain of its subsidiaries and affiliates (collectively, “Summit”), which assets are currently used in the conduct of commercial vehicle sales, leasing, rental, parts and service business operated by Summit at its dealership facilities located in Arkansas, Kansas, Mississippi, Missouri, Oklahoma, Tennessee and Texas.

We estimate that the purchase price, including goodwill, but excluding any real property, will be approximately $223.0 million.

At the closing, we anticipate that we will finance approximately $114.0 million of the purchase price.

In connection with the transaction, we also anticipate purchasing certain real property of the Seller for approximately $60.0 million pursuant to one or more real property purchase agreements.

We do not expect to ultimately own Summit’s dealerships located in Oklahoma or Mississippi.

We have no other material commitments for capital expenditures as of September 30, 2021.

We have no other material commitments for capital expenditures as of March 31, 2022.

However, we will continue to purchase vehicles for our lease and rental operations and authorize capital expenditures for the improvement or expansion of our existing dealership facilities and construction or purchase of new facilities based on market opportunities.

Cash and cash equivalents decreased by $52.4 million during the nine months ended September 30, 2021 and increased by $77.9 million during the nine months ended September 30, 2020.

Cash and cash equivalents increased by $61.4 million during the three months ended March 31, 2022, and increased by $4.0 million during the three months ended March 31, 2021.

The major components of these changes are discussed below.

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Cash flows from operating activities include net income adjusted for non-cash items and the effects of changes in working capital.

During the first nine months of 2021, operating activities resulted in net cash provided by operations of $438.6 million.

Net cash provided by operating activities primarily consisted of $172.8 million in net income, as well as non-cash adjustments related to depreciation and amortization of $126.7 million, stock-based compensation of $18.3 million and the benefit for deferred income tax expense of $23.0 million.

During the first quarter of 2022, operating activities resulted in net cash provided by operations of $34.6 million.

Net cash provided by operating activities primarily consisted of $92.5 million in net income adjusted by the gain of $12.5 million related to the joint venture transaction, as well as non-cash adjustments related to depreciation and amortization of $45.8 million, deferred income tax benefit of $1.0 million and stock-based compensation of $13.8 million.

Cash provided by operating activities included an aggregate of $101.7 million net change in operating assets and liabilities.

Included in the net change in operating assets and liabilities were cash inflows of $147.3 million from the decrease in inventories, $23.2 million from the decrease in accounts receivable and $16.7 million from the increase in accounts payable, which was offset by cash outflows of $8.4 million from decreases in accrued liabilities and $30.4 million from the decrease in customer deposits.

Included in the net change in operating assets and liabilities was primarily cash outflows of $58.8 million from the increase in accounts receivable, $98.3 million from the increase in inventory, $8.7 million from the decrease in customer deposits, which were offset by cash inflows of $64.2 million from the net increase in accounts payable and accrued liabilities.

The majority of our commercial vehicle inventory is financed through our floor plan credit agreements.

During the first nine months of 2020, operating activities resulted in net cash provided by operations of $590.5 million.

Net cash provided by operating activities primarily consisted of $73.9 million in net income, as well as non-cash adjustments related to depreciation and amortization of $134.0 million, stock-based compensation of $15.5 million and the benefit for deferred income tax expense of $11.6 million.

During the first quarter of 2021, operating activities resulted in net cash provided by operations of $40.1 million.

Net cash provided by operating activities primarily consisted of $45.3 million in net income, as well as non-cash adjustments related to depreciation and amortization of $42.6 million, deferred income tax benefit of $8.4 million and stock-based compensation of $11.5 million.

Cash provided by operating activities included an aggregate of $50.1 million net change in operating assets and liabilities.

Included in the net change in operating assets and liabilities were cash inflows of $439.2 million from the decrease in inventories, $28.0 million from the decrease in accounts receivable and $7.4 million from the decrease in other assets and $3.0 million from the increase in accrued liabilities, which was offset by cash outflows of $24.9 million from decreases in accounts payables, $62.3 million from the net decrease in floor plan, trade and $6.1 million from the decrease in customer deposits.

Included in the net change in operating assets and liabilities was primarily cash outflows of $14.7 million from the increase in accounts receivable, $1.8 million from the increase in inventory, $0.7 million in the increase in other current assets, $1.6 million from the net decrease in accounts payable and accrued liabilities, $31.2 million from the decrease in customer deposits.

Cash Flows from Investing Activities

During the first nine months of 2021, cash used in investing activities was $121.4 million.

Cash flows used in investing activities consists primarily of cash used for capital expenditures.

Capital expenditures were $122.3 million during the first nine months of 2021 and consisted primarily of purchases of property and equipment and improvements to our existing dealership facilities.

Property and equipment purchases during the first nine months of 2021 included $88.0 million for additional units for the rental and leasing operations.

During the first nine months of 2020, cash used in investing activities was $98.9 million.

Cash flows used in investing activities consists primarily of cash used for capital expenditures.

Capital expenditures were $107.8 million during the first nine months of 2020 and consisted primarily of purchases of property and equipment and improvements to our existing dealership facilities.

Property and equipment purchases during the first nine months of 2020 included $75.6 million for additional units for the rental and leasing operations, which were directly offset by borrowings of long-term debt.

During the first quarter of 2022, cash used in investing activities totaled $16.3 million.

Cash flows used in investing activities consist primarily of cash used for capital expenditures.

Capital expenditures totaled $45.7 million during the first quarter of 2022 and consisted primarily of purchases of property and equipment, improvements to our existing dealership facilities and $27.8 million for purchases of rental and lease vehicles for the rental and leasing operations.

The cash outflows were offset by the cash inflow of $27.5 million related to Cummins, Inc.’s acquisition of a 50% equity interest in Momentum Fuel Technologies.

During the first quarter of 2021, cash used in investing activities was $32.2 million.

Cash flows used in investing activities consist primarily of cash used for capital expenditures.

Capital expenditures of $32.9 million consisted primarily of $8.3 million for purchases of property and equipment and improvements to our existing dealership facilities and $24.6 million for additional units for the rental and leasing operations, which were directly offset by borrowings of long-term debt.

Cash Flows from Financing Activities

Cash flows from financing activities include borrowings and repayments of long-term debt and net proceeds of floor plan notes payable, non-trade.

During the first nine months of 2021, financing activities resulted in net cash used in financing of $369.6 million, primarily related to $157.4 million from net payments on floor plan notes payable, non-trade, $232.8 million used for principal repayments of long-term debt and capital lease obligations, $21.7 million used for repurchases of common stock and $30.5 million used for payment of cash dividends.

These cash outflows were offset by cash inflows of $6.4 million from the issuance of shares related to equity compensation plans and borrowings of $66.4 million of long-term debt.

The borrowings of long-term debt were primarily related to purchasing units for the rental and leasing operations.

During the first nine months of 2020, financing activities resulted in net cash used in financing of $413.6 million, primarily related to $320.3 million from net payments on floor plan notes payable, non-trade, $212.2 million used for principal repayments of long-term debt and capital lease obligations, $22.4 million used for repurchases of common stock and $14.7 million used for payment of cash dividends.

These cash outflows were offset by cash inflows of $16.1 million from the issuance of shares related to equity compensation plans and borrowings of $139.9 million of long-term debt.

The borrowings of long-term debt were primarily related to purchasing units for our rental and leasing operations.

On September 14, 2021, we entered into the WF Credit Agreement with the Lenders signatory thereto (the “WF Lenders”) and Wells Fargo Bank, National Association (“WF”), as Administrative Agent (in such capacity, the “WF Agent”).

During the first quarter of 2022, financing activities provided $43.1 million in net cash flow.

Cash outflows were primarily related to $208.0 million used for principal repayments of long-term debt and finance lease obligations, $14.4 million used for the repurchase of our common stock and $11.1 million used for the payment of cash dividends.

These cash outflows were offset by cash inflows related to borrowings of $207.5 million of long-term debt and $71.5 million used for net draws on floor plan (non-trade).

Cash flows from financing activities include borrowings and repayments of long-term debt and net proceeds of floor plan notes payable, non-trade.

During the first quarter of 2021, financing activities used $4.0 million in net cash flow.

Cash outflows were primarily related to $46.8 million used for principal repayments of long-term debt and capital lease obligations, $6.6 million used for the repurchase of our common stock and $9.9 million used for the payment of cash dividends.

These cash outflows were offset by cash inflows related to borrowings of $28.2 million of long-term debt and $38.5 million used for net draws on floor plan (non-trade).

The borrowings of long-term debt were related to purchasing units for the rental and leasing operations.

On September 14, 2021, we entered into the WF Credit Agreement with the WF Lenders and the WF Agent.

Pursuant to the terms of the WF Credit Agreement, the WF Lenders have agreed to make up to $250.0 million of revolving credit loans for certain of our capital expenditures, including commercial vehicle purchases for our Idealease leasing and rental fleet, and general working capital needs.

We expect to use the revolving credit loans available under the WF Credit Agreement primarily for the purpose of purchasing commercial vehicles for our Idealease lease and rental fleet.

We may borrow, repay and reborrow loans from time to time until the maturity date.

Borrowings under the WF Credit Agreement bear interest per annum, payable on each interest payment date, as defined in the WF Credit Agreement, at (A) the daily simple secured overnight financing rate (“SOFR”) rate plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio or (B) on or after the term SOFR transition date, the term SOFR rate plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio.

We may borrow, repay and reborrow amounts pursuant to the WF Credit Agreement from time to time until the maturity date.

Borrowings under the WF Credit Agreement bear interest per annum, payable on each interest payment date, as defined in the WF Credit Agreement, at (A) the daily SOFR rate plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio or (B) on or after the term SOFR transition date, the term SOFR rate plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio.

The WF Credit Agreement expires on September 14, 2024, although, upon the occurrence and during the continuance of an event of default, the WF Agent has the right to, or upon the request of the required lenders must, terminate the commitments and declare all outstanding principal and interest due and payable.

We may terminate the commitments at any time.

On October 1, 2021, we 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”).

On March 31, 2022, we had approximately $153.4 million outstanding under the WF Credit Agreement.

On October 1, 2021, we entered into the PLC Agreement.

Pursuant to the terms of the PLC Agreement, PLC agreed to make up to $300.0 million of revolving credit loans to finance certain of our capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through our PacLease franchises.

We may borrow, repay and reborrow loans from time to time until the maturity date, provided, however, that the outstanding principal amount on any date shall not exceed the borrowing base.

We may borrow, repay and reborrow amounts pursuant to the PLC Agreement from time to time until the maturity date, provided, however, that the outstanding principal amount on any date shall not exceed the borrowing base.

Advances under the PLC Agreement bear interest per annum, payable on the fifth day of the following month, at our option, at either (A) the prime rate, minus 1.55%, provided that the floating rate of interest is subject to a floor of 0%, or (B) a fixed rate, to be determined between us and PLC in each instance of borrowing at a fixed rate.

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If we terminate the PLC Agreement prior to October 1, 2025, then all payments will be deemed to be voluntary prepayments subject to a potential prepayment premium.

On March 31, 2022, we had approximately $185.0 million outstanding under the PLC Agreement.

Most of our commercial vehicle purchases are made on terms requiring payment to the manufacturer within 15 days or less from the date the commercial vehicles are invoiced from the factory.

On September 14, 2021, we entered into the Fifth Amended and Restated Floor Plan Credit Agreement with BMO Harris Bank N.A.

and the lenders signatory thereto (the Floor Plan Credit Agreement).

Prior to the Floor Plan Credit Agreement, we financed the majority of all new commercial vehicle inventory and the loan value of our used commercial vehicle inventory under the Fourth Amended and Restated Floor Plan Credit Agreement with BMO Harris Bank N.A.

and the majority of such financings will continue to occur under the Floor Plan Credit Agreement.

On September 14, 2021, we entered into Floor Plan Credit Agreement with BMO Harris and the lenders signatory thereto.

The Floor Plan Credit Agreement includes an aggregate loan commitment of $1.0 billion.

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The Floor Plan Credit Agreement expires September 14, 2026, although BMO Harris has the right to terminate at any time upon 360 days written notice and we may terminate at any time, subject to specified limited exceptions.

On September 30, 2021, we had approximately $333.7 million outstanding under the Floor Plan Credit Agreement.

The average daily outstanding borrowings under the Floor Plan Credit Agreement were $376.8 million during the nine months ended September 30, 2021.

On March 31, 2022, we had approximately $591.4 million outstanding under the Floor Plan Credit Agreement.

The average daily outstanding borrowings under the Floor Plan Credit Agreement were $522.8 million during the three months ended March 31, 2022.

We utilize our excess cash on hand to pay down our outstanding borrowings under the Floor Plan Credit Agreement, and the resulting interest earned is recognized as an offset to our gross interest expense under the Floor Plan Credit Agreement.

Navistar Financial Corporation and Peterbilt offer trade terms that provide an interest-free inventory period for certain new commercial vehicles.

Navistar Financial Corporation and Peterbilt offer trade terms that provide an interest-free inventory stocking period for certain new commercial vehicles.

This interest-free period is generally 15 to 60 days.

If the commercial vehicle is not sold within the interest-free period, we then finance the commercial vehicle under the Floor Plan Credit Agreement.

On September 30, 2021, our backlog of commercial vehicle orders was approximately $2,720.2 million, compared to a backlog of commercial vehicle orders of approximately $1,067.3 million on September 30, 2020.

On March 31, 2022, our backlog of commercial vehicle orders was approximately $3,441.4 million, compared to a backlog of commercial vehicle orders of approximately $1,736.0 million on March 31, 2021.

This increase in our backlog is primarily due to production constraints experienced by the manufacturers we represent.

Our backlog is determined quarterly by multiplying the number of new commercial vehicles for each particular type of commercial vehicle ordered by a customer at our Rush Truck Centers by the recent average selling price for that type of commercial vehicle.

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We sell the majority of our new heavy-duty commercial vehicles by customer special order and we sell the majority of our medium- and light-duty commercial vehicles out of inventory.

Orders from a number of our major fleet customers are included in our backlog as of September 30, 2021, and we are uncertain of when we will fill our backlog orders due to the current supply chain delays.

Orders from a number of our major fleet customers are included in our backlog as of March 31, 2022, and we expect to fill the majority of our backlog orders during 2022, assuming that the manufacturers we represent can meet their current production schedule.

Our current backlog is the largest it has ever been in our Company’s history.

Given the potential for industry headwinds in the coming months caused by lower spot rates and higher interest rates and fuel prices, which could negatively impact industry demand for new commercial vehicles moving forward, we believe that the longer it takes to fill our backlog, the greater the risk that a significant amount of commercial vehicle orders currently reflected in our backlog could be cancelled.

Our Truck Segment is moderately seasonal.

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According to data published by A.C.T.

Research, in recent years, total U.S.

Research, total U.S.

retail sales of new Class 8 commercial vehicles have ranged from a low of approximately 110,000 in 2010, to a high of approximately 281,440 in 2019.

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The Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”), on behalf of the U.S.

Department of Transportation, issued rules associated with reducing greenhouse gas (“GHG”) emissions and improving the fuel efficiency of medium and heavy-duty trucks and buses for model years 2021 through 2027. 

We do not believe that these rules will negatively impact our business, however, future legislation or other new regulations that may be adopted to address GHG emissions or fuel efficiency standards may negatively impact our business. 

For example, in June 2020, the California Air Resources Board adopted a final rule that is intended to phase out the sale of diesel-powered commercial vehicles over time by requiring a certain percentage of each manufacturer’s commercial vehicles sold within the state to be “zero-emission vehicles,”

In addition, in August 2021, the President of the United States issued an executive order intended to increase fuel efficiency, further reduce GHG emissions and speed up the development of “zero-emission”

The executive order calls for the EPA and the Secretary of Transportation to adopt new rules and regulations for commercial vehicles starting as early as model year 2027.

Similarly, in June 2020, the California Air Resources Board adopted a final rule that is intended to phase out the sale of diesel-powered commercial vehicles over time by requiring a certain percentage of each manufacturer’s commercial vehicles sold within the state to be “zero-emission vehicles,”

or “near-zero emission vehicles,”

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states and the District of Columbia entered into a joint memorandum of understanding that commits each of them to work together to advance and accelerate the market for electric Class 3 through 8 commercial vehicles;

Three of the states that signed are states where we operate new commercial vehicle dealerships:

California, Colorado and North Carolina.

The signatories to the memorandum all agreed on a goal of ensuring that 100% of new Class 3 through 8 commercial vehicles are zero emission, with an interim target of 30% zero emission by 2030.

one additional state signed in 2021.

Four of the states that signed are states where we operate new commercial vehicle dealerships:

California, Colorado, North Carolina and Virginia.

The signatories to the memorandum all agreed on a goal of ensuring that 100% of new Class 3 through 8 commercial vehicles are zero emission by 2050, with an interim target of 30% zero emission by 2030.

Attaining these goals would likely require the adoption of new laws and regulations and we cannot predict at this time whether such laws and regulations would have an adverse impact on our business.

Additional regulations could result in increased compliance costs, additional operating restrictions or changes in demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.

We do not believe that we currently have any material environmental liabilities or that compliance with environmental laws and regulations will have a material adverse effect on our results of operations, financial condition or cash flows.

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements