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Item 1. Financial Statements

2022-11-09 compared with 2022-08-09 · 289 added, 700 removed, 688 unchanged (59% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2022 AND DECEMBER 31, 2021

(In Thousands, Except Shares)

September 30,

Current assets:

Cash and cash equivalents

$ 216,694  

$ 148,146  

Accounts receivable, net

232,129  

140,186  

Inventories, net

1,273,969  

1,020,136  

Prepaid expenses and other

19,959  

15,986  

Total current assets

1,742,751  

1,324,454  

Property and equipment, net

1,347,748  

1,278,207  

Operating lease right-of-use assets, net

106,301  

69,008  

Goodwill, net

418,270  

370,331  

Other assets, net

54,299  

77,977  

$ 3,669,369  

$ 3,119,977  

Liabilities and shareholders ’

1 unchanged sentence

Floor plan notes payable

$ 851,715  

$ 630,731  

Current maturities of finance lease obligations

26,388  

26,695  

Current maturities of operating lease obligations

15,406  

12,096  

Trade accounts payable

175,563  

122,291  

Customer deposits

73,768  

80,561  

Accrued expenses

156,713  

131,130  

Total current liabilities

1,299,553  

1,003,504  

Long-term debt, net of current maturities

401,760  

334,926  

Finance lease obligations, net of current maturities

82,204  

89,835  

Operating lease obligations, net of current maturities

92,076  

57,976  

Other long-term liabilities

19,876  

26,514  

Deferred income taxes, net

144,589  

140,473  

Shareholders’

7 unchanged sentences

Additional paid-in capital

488,170  

470,750  

Treasury stock, at cost:

979,978 Class A shares and 927,330 Class B shares in 2022;

and 339,786 Class A shares and 492,052 Class B shares in 2021

( 90,686 )  

1,493,121 Class A shares and 1,103,433 Class B shares in 2022;

and 183,765 Class A shares and 416,069 Class B shares in 2021

Retained earnings

1,212,919  

1,031,582  

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Total Rush Enterprises, Inc.

shareholders’

1,611,037  

1,466,749  

Noncontrolling interest

18,274  

Total shareholders’

1,629,311  

1,466,749  

Total liabilities and shareholders ’

$ 3,669,369  

$ 3,119,977  

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

4 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

New and used commercial vehicle sales

$ 1,098,255  

$ 797,269  

$ 2,033,974  

$ 1,544,988  

Aftermarket products and services sales

598,298  

445,526  

1,141,561  

861,263  

Lease and rental sales

80,538  

61,396  

151,873  

119,623  

Finance and insurance

15,280  

13,872  

11,755  

Total revenue

1,791,241  

1,316,015  

3,354,443  

2,547,821  

Cost of products sold

New and used commercial vehicle sales

994,406  

719,768  

1,829,399  

1,396,860  

Aftermarket products and services sales

367,284  

277,078  

701,492  

538,920  

Lease and rental sales

55,335  

48,387  

103,896  

96,445  

Total cost of products sold

1,417,025  

1,045,233  

2,634,787  

2,032,225  

374,216  

270,782  

719,656  

515,596  

Selling, general and administrative expense

225,327  

184,734  

449,774  

359,689  

Depreciation and amortization expense

13,910  

13,421  

27,584  

27,147  

Gain on sale of assets

Operating income

135,023  

72,791  

242,522  

129,016  

22,397  

Interest (income) expense, net

( 212 )  

Other (expense) income

Interest expense, net

Income before taxes

140,188  

74,749  

260,532  

131,386  

Income tax provision

29,515  

16,705  

57,406  

28,009  

110,673  

58,044  

203,126  

103,377  

Net income attributable to noncontrolling interest

Net income attributable to Rush Enterprises, Inc.

$ 110,227  

$ 58,044  

$ 202,680  

$ 103,377  

Net income attributable to Rush Enterprises, Inc.

per share of common stock:

$ 1.98  

$ 1.04  

$ 3.63  

$ 1.85  

$ 1.92  

$ 1.00  

$ 3.52  

$ 1.79  

Weighted average shares outstanding:

55,640  

56,009  

55,788  

55,819  

57,310  

57,956  

57,610  

57,846  

Dividends declared per common share

$ 0 .19  

$ 0 .18  

$ 0.38  

$ 0.36  

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

4 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

$ 110,673  

$ 58,044  

$ 203,126  

$ 103,377  

September 30,

Nine Months Ended

September 30,

Other comprehensive income (loss), net of tax:

Foreign currency translation

( 567 )  

( 122 )  

Reclassification of currency translation related to equity method accounting

( 601 )  

Other comprehensive income (loss) attributable to Rush Enterprises, Inc.

( 1,168 )  

( 723 )  

Comprehensive income

$ 109,505  

$ 58,356  

$ 202,403  

$ 103,944  

Comprehensive income attributable to Rush Enterprises, Inc.

109,059  

58,356  

201,957  

103,944  

Comprehensive income attributable to noncontrolling interest

Comprehensive income

$ 109,505  

$ 58,356  

$ 202,403  

$ 103,944  

Comprehensive income attributable to Rush Enterprises, Inc.

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

3 unchanged sentences

(In Thousands)

Comprehensive

Class A Class B

Comprehensive Income (Loss)

Rush Enterprises, Inc.

Shareholders’

1 unchanged sentence

Shareholders’

Class A  

Class B  

Capital  

Earnings  

Income (Loss)  

Equity  

Interest  

Equity  

Balance, December 31, 2021

43,108  

12,399  

$ 470,750  

$ ( 36,933 )  

$ 1,031,582  

$ 1,466,749  

Stock options exercised and stock awards

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

13,793  

Vesting of restricted share awards

( 7,215 )  

( 7,212 )  

Issuance of common stock under employee stock purchase plan

Common stock repurchases

( 192 )  

( 104 )  

( 15,315 )  

Dividend Class A common stock

( 8,189 )  

––

( 8,189 )  

Dividend Class B common stock

( 2,505 )  

––

( 2,505 )  

Foreign currency translation adjustment

92,453  

Balance, March 31, 2022

43,094  

12,597  

$ 482,146  

$ ( 52,248 )  

$ 1,113,341  

$ 1,232  

$ 1,545,039  

Stock options exercised and stock awards

1 unchanged sentence

Vesting of restricted share awards

( 1,423 )  

Common stock repurchases

( 448 )  

( 331 )  

( 38,438 )  

Dividend Class A common stock

( 8,128 )  

––

( 8,128 )  

Dividend Class B common stock

( 2,521 )  

––

( 2,521 )  

Foreign currency translation adjustment

( 567 )  

Reclassification of foreign currency translation related to equity method

( 601 )  

Noncontrolling interest equity

17,828  

110,227  

110,673  

Balance, June 30, 2022

42,808  

12,266  

$ 488,170  

$ ( 90,686 )  

$ 1,212,919  

$ 1,611,037  

$ 18,274  

$ 1,629,311  

Comprehensive

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

Issuance of common stock under employee stock purchase plan

Common stock repurchases

Dividend Class A common stock

Dividend Class B common stock

Foreign currency translation adjustment

Balance, September 30, 2022

Class A Class B

Comprehensive Income (Loss)

Rush Enterprises, Inc.

Shareholders’

1 unchanged sentence

Shareholders’

Class A  

Class B  

Capital  

Earnings  

Income (Loss)  

Equity  

Interest  

Equity  

Balance, December 31, 2020

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 )  

( 6,777 )  

Issuance of common stock under employee stock purchase plan

Common stock repurchases

( 155 )  

( 6,483 )  

Dividend Class A common stock

( 7,684 )  

––

( 7,684 )  

Dividend Class B common stock

( 2,380 )  

––

( 2,380 )  

Other comprehensive income

45,333  

Balance, March 31, 2021

42,885  

12,660  

$ 449,790  

$ ( 9,362 )  

$ 867,119  

$ 1,124  

$ 1,309,229  

Stock options exercised and stock awards

1 unchanged sentence

Vesting of restricted share awards

( 614 )  

Common stock repurchases

( 99 )  

( 4,223 )  

Dividend Class A common stock

( 7,735 )  

––

( 7,735 )  

Dividend Class B common stock

( 2,425 )  

––

( 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

Issuance of common stock under employee stock purchase plan

Common stock repurchases

Dividend Class A common stock

Dividend Class B common stock

Other comprehensive income

Balance, September 30, 2021

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

3 unchanged sentences

(In Thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

$ 202,680  

$ 103,377  

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

95,122  

84,891  

Gain on sale of property and equipment, net

( 224 )  

Gain on sale of property and equipment

Gain on joint venture transaction

( 12,500 )  

Gain on business acquisition

( 6,958 )  

Stock-based compensation expense related to employee equity awards and employee stock purchases

17,996  

15,203  

Deferred income tax expense

Change in accounts and notes receivable, net

( 85,110 )  

12,046  

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

Deferred income tax benefit

Change in accounts receivable, net

Change in inventories, net

( 193,046 )  

76,772  

Change in prepaid expenses and other, net

( 1,922 )  

Change in trade accounts payable

33,307  

12,376  

Change in customer deposits

( 8,773 )  

Change in accrued expenses

18,572  

( 5,081 )  

Net cash provided by operating activities

58,179  

237,703  

Cash flows from investing activities:

Acquisition of property and equipment

( 107,226 )  

Proceeds from the sale of property and equipment

Business disposition

27,500  

Business acquisition, net of cash acquired

( 15,051 )  

( 2,189 )  

Net cash used in investing activities

( 94,194 )  

Cash flows from financing activities:

1 unchanged sentence

non-trade, net

190,483  

Proceeds from long-term debt

571,302  

52,325  

Principal payments on long-term debt

( 574,165 )  

Principal payments on finance lease obligations

( 8,110 )  

Proceeds from issuance of shares relating to equity awards and employee stock purchases

11,339  

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

Taxes paid related to net share settlement of equity awards

( 8,637 )  

Payments of cash dividends

( 21,589 )  

Common stock repurchased

( 52,789 )  

Net cash provided by (used in) financing activities

104,563  

Net increase in cash and cash equivalents

68,548  

Net increase (decrease) in cash and cash equivalents

Effect of exchange rate on cash

Cash and cash equivalents, beginning of period

148,146  

312,048  

Cash and cash equivalents, end of period

$ 216,694  

$ 315,911  

Supplemental disclosure of cash flow information:

Cash paid during the period for:

$ 5,964  

$ 13,213  

Income taxes, net of refunds

$ 38,354  

$ 67,766  

Noncash activities:

Noncash investing and financing activities:

Assets acquired under finance leases

$ 5,749  

$ 15,019  

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

10 unchanged sentences

Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “

Reference Rate Reform (Topic 848), ”

which provides temporary optional guidance to ease the potential financial reporting burden of the expected market transition away from LIBOR.

The new guidance provides optional expedients and exceptions for applying U.S.

GAAP to contract modifications, hedge accounting, and other transactions affected by reference rate reform if certain criteria are met through December 31, 2022.

The Company does not expect this standard to have a material effect on its financial position, results of operations and related disclosures.

COVID-19 Risks and Uncertainties

3 unchanged sentences

The functional currency of the Company’s foreign subsidiary, Rush Truck Centres of Canada Limited (“RTC Canada”), is the local currency.

Results of operations for RTC Canada are translated to USD using the average exchange rate on a monthly basis during the quarter.

Results of operations for RTC Canada are translated to USD using the average exchange rate on a monthly basis during each quarter.

The assets and liabilities of RTC Canada are translated into USD using the exchange rate in effect on the balance sheet date.

2 unchanged sentences

Equity Method Investment

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. 

Prior to acquiring an additional 30 % equity interest on May 2, 2022, for approximately $ 20.0 million, the Company accounted for the equity interest in RTC Canada using the equity method of accounting. 

Now that the Company owns an 80 % equity interest in RTC Canada, the operating results of RTC Canada are consolidated in the Consolidated Statements of Income, the Consolidated Statements of Comprehensive Income and the Consolidated Balance Sheets, as of May 2, 2022. 

On February 25, 2019, the Company acquired 50 % of the equity interest in RTC Canada, which acquired the operating assets of Tallman Group, the largest International Truck dealer in Canada.

See Note 13 –

1 unchanged sentence

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. 

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

As of June 30, 2022, the Company’s investment in Natural Gas Fuels Systems, LLC was $ 14.8 million.

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

acquired a 50 % equity interest in Natural Gas Fuel Systems, LLC (“NGFS”) from the Company for $ 27.5 million.

NGFS previously conducted business as Momentum Fuel Technologies.

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

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

As of September 30, 2022, the Company’s investment in NGFS was $ 14.4 million.

The Company’s equity income in NGFS is included in the line item Other income on the Consolidated Statements of Income.

Commitments and Contingencies

2 unchanged sentences

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.

As of June 30, 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.

As of September 30, 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 amounts):

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

Three Months Ended

Six Months Ended

Numerator for basic and diluted earnings per share –

Net income available to common shareholders

$ 110,227  

$ 58,044  

$ 202,680  

$ 103,377  

September 30,

Nine Months Ended

September 30,

Numerator for basic and diluted earnings per share –Net income available to common shareholders

Denominator for basic earnings per share –

weighted average shares outstanding

55,640  

56,009  

55,788  

55,819  

Effect of dilutive securities–

Employee stock options and restricted stock awards

Employee and director stock options and restricted share awards

Denominator for diluted earnings per share –

adjusted weighted average shares outstanding and assumed conversions

57,310  

57,956  

57,610  

57,846  

Basic earnings per common share

$ 1.98  

$ 1.04  

$ 3.63  

$ 1.85  

Diluted earnings per common share and common share equivalents

$ 1.92  

$ 1.00  

$ 3.52  

$ 1.79  

Options to purchase shares of common stock that were outstanding for the three months and six months ended June 30, 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):

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

Three Months Ended

Six Months Ended

Weighted average anti-dilutive stock options

September 30,

Nine Months Ended

September 30,

Weighted average anti-dilutive options

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 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 $ 4.2 million for the three months ended June 30, 2022, and $ 3.7 million for the three months ended June 30, 2021.

Stock-based compensation expense, included in selling, general and administrative expense, was $ 18.0 million for the six months ended June 30, 2022, and was $ 15.2 million for the six months ended June 30, 2021.

As of June 30, 2022, the Company had $ 13.0 million of unrecognized compensation cost related to non-vested employee stock options to be recognized over a weighted-average period of 2.5 years and $ 15.0 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.5 years.

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 $ 3.6 million for the three months ended September 30, 2022, and $ 3.1 million for the three months ended September 30, 2021.

Stock-based compensation expense was $ 21.5 million for the nine months ended September 30, 2022, and $ 18.3 million for the nine months ended September 30, 2021.

As of September 30, 2022, the Company had $ 11.8 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 $ 12.9 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

2 unchanged sentences

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 June 30, 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.

Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments as of September 30, 2022, and December 31, 2021.

Thus, the carrying value of current assets and current liabilities approximates the fair value due to the short maturity of these items.

The fair value of the Company’s long-term debt is based on secondary market indicators.

Because the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including remaining maturities, interest rate, credit rating, collateral and liquidity.

Because the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including remaining maturities, variable 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 June 30, 2022 and 2021 (in thousands):

As of and for the three months ended June 30, 2022

As of and for the three months ended September 30, 2022

Revenues from external customers

$ 1,786,927  

$ 4,314  

$ 1,791,241  

Segment operating income

134,506  

135,023  

Segment income before taxes

139,765  

140,188  

Segment assets

3,615,745  

53,624  

3,669,369  

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

Revenues from external customers

$ 3,345,979  

$ 8,464  

$ 3,354,443  

Segment operating income

241,826  

242,522  

Segment income before taxes

260,023  

260,532  

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

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

Revenues from external customers

$ 1,311,678  

$ 4,337  

$ 1,316,015  

Segment operating income

72,163  

72,791  

Segment income before taxes

74,191  

74,749  

Segment assets

2,863,087  

49,037  

2,912,124  

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

Revenues from external customers

$ 2,539,790  

$ 8,031  

$ 2,547,821  

Segment operating income

128,113  

129,016  

Segment income before taxes

130,623  

131,386  

The Company had unrecognized income tax benefits totaling $ 4.3 million as a component of accrued liabilities as of June 30, 2022 and December 31, 2021, 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 September 30, 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 $ 279,000 accrued for the payment of interest as of June 30, 2022 and December 31, 2021.

The Company had approximately $ 279,000 accrued for the payment of interest as of September 30, 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 June 30, 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.

As of September 30, 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, excluding lease and rental revenue, for the three months and six months ended June 30, 2022 and 2021 (in thousands):

The following table summarizes the Company’s disaggregated revenue by revenue source, excluding lease and rental revenue, for the three months and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

September 30,

Nine Months Ended

September 30,

Commercial vehicle sales revenue

$ 1,098,255  

$ 797,269  

$ 2,033,974  

$ 1,544,988  

Parts revenue

361,562  

263,491  

692,304  

503,927  

Commercial vehicle repair service revenue

236,736  

182,035  

449,257  

357,336  

Finance revenue

1 unchanged sentence

Other revenue

11,755  

$ 1,710,703  

$ 1,254,619  

$ 3,202,570  

$ 2,428,198  

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 June 30, 2022 or December 31, 2021.

The Company did not have any material contract assets or contract liabilities on the balance sheet as of September 30, 2022 or December 31, 2021.

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.

9 unchanged sentences

Sales-type leases are recognized by the Company as lease receivables.

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

The receivable for sales-type leases as of June 30, 2022 was $ 5.5 million, compared to $ 5.4 million as of December 31, 2021, and is reflected in the line item Other assets on the Consolidated Balance Sheet. 

Lease and rental income during the three and six months ended June 30, 2022 and June 30, 2021 consisted of the following (in thousands):

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

The receivable for sales-type leases as of September 30, 2022 was $ 6.1 million, compared to $ 5.4 million as of December 31, 2021, and is reflected in the line item Other assets on the Consolidated Balance Sheet.

Lease and rental income during the three and nine months ended September 30, 2022, and September 30, 2021, consisted of the following (in thousands):

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

September 30,

Nine Months Ended

September 30,

Minimum rental payments

$ 70,652  

$ 52,947  

$ 132,650  

$ 103,652  

Nonlease payments

19,223  

15,971  

$ 80,538  

$ 61,396  

$ 151,873  

$ 119,623  

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income (Loss)

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

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Balance as of March 31, 2022

$ 1,232  

Reclassification of currency translation related to equity method of RTC Canada

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Balance as of June 30, 2022

The functional currency of the Company’s foreign subsidiary, RTC Canada, is its local currency. 

Foreign currency translation adjustment

Balance as of September 30, 2022

The functional currency of the Company’s foreign subsidiary, RTC Canada, is its local currency.

Results of operations of RTC Canada are translated in USD using the average exchange rates on a monthly basis during the year.

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Provision for

June 30, 2022

September 30,

Commercial vehicle receivables

Manufacturers’

( 552 )  

Leasing, parts and service receivables

( 798 )  

Other receivables

$ 1,590  

$ 1,900  

$ ( 1,353 )  

$ 2,137  

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.

On December 13, 2021, the Company completed the acquisition of certain of the assets of Summit Truck Group, LLC and certain of its subsidiaries and affiliates (collectively, “Summit”) which included full-service commercial vehicle dealerships and Idealease franchises in Arkansas, Kansas, Missouri, Tennessee and Texas.

The acquisition included Summit’s dealerships representing International, IC Bus, Idealease, Isuzu and other commercial vehicle manufacturers for a purchase price of approximately $ 205.3 million, excluding the real property associated with the transaction.

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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  

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):

Franchise rights

72,773  

Property and equipment, including real estate

113,306  

$ 262,252  

In July 2022, the Company adjusted the preliminary purchase price for inventory by $ 0.7 million with a corresponding adjustment to goodwill.

The goodwill of $ 74.4 million for the Summit acquisition is primarily attributable to the synergies expected to arise after the acquisition.

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

On May 2, 2022, the Company completed the acquisition of an additional 30 % equity interest in RTC Canada, resulting in an 80 % controlling interest in RTC Canada. 

The acquisition was accounted for as an acquisition achieved in stages under ASC 805, Business Combinations . 

The acquisition-date fair value of the previous 50 % equity interest was $ 44.7 million, resulting in a gain of $ 7.0 million included in the line item Other income (expense) on the Consolidated Statements of Income. 

On May 2, 2022, the Company completed the acquisition of an additional 30 % equity interest in RTC Canada, resulting in an 80 % controlling interest in RTC Canada.

The acquisition was accounted for as an acquisition achieved in stages under ASC 805, Business Combinations .

The Company also recognized a reversal of deferred tax liabilities of $ 2.2 million and $ 0.6 million related to reclassification of the foreign currency translation adjustment related to the remeasurement of the Company’s previous equity method investment in RTC Canada.

As of May 2, 2022, the Company established a noncontrolling interest related to the minority holders. 

The fair value of the 20 % noncontrolling interest in RTC Canada is estimated to be $ 17.8 million.

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and (iv) adjustments because of the lack of control or lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest in RTC Canada.

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):

$ 4,310  

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):

Accounts receivable

19,072  

56,255  

Property and equipment, including real estate

80,337  

Floor plan notes payable

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Notes payable

47,939  

Equity investment in RTC Canada

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Gain on equity method investment

$ 19,361  

The purchase price allocation has not yet been finalized.

The Company is currently working with RTC Canada to obtain additional information that existed at the time of the acquisition related to property and equipment, inventory and valuation of intangible assets. 

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

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Now that the Company owns an 80 % equity interest, operations of RTC Canada are included in the accompanying consolidated financial statements as of May 2, 2022

ITEM 2. 

Management ’

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is a registered trademark of Isuzu Motors Limited.

Ford Motor Credit Company ®

is a registered trademark of Ford Motor Company.

 Ford ®

is a registered trademark of Ford Motor Company.

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Through our strategically located network of Rush Truck Centers, we provide one-stop service for the needs of our commercial vehicle customers, including retail sales of new and used commercial vehicles, aftermarket parts sales, service and repair facilities, financing, leasing and rental, and insurance products.

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

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”) and on May 2, 2022, we purchased an additional 30% equity interest in RTC Canada that increased our equity interest to 80%. 

RTC Canada currently owns and operates 15 International dealership locations in Ontario. 

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

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

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.

RTC Canada currently owns and operates 15 International dealership locations in Ontario.

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

Now, the operating results of RTC Canada are consolidated in the Consolidated Statements of Operations, the Statements of Comprehensive Income, the Consolidated Balance Sheets and commercial vehicle unit sales data as of May 2, 2022. 

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Impact on Our Business

While business conditions have improved significantly since the onset of the Covid-19 pandemic in the second quarter of 2020, 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. 

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 253,100 units in 2022, which would represent an 11.3% increase compared to 2021.

Class 8 retail truck sales to be 258,600 units in 2022, which would represent a 13.7% increase compared to 2021.

We expect our U.S.

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This market share percentage would result in the sale of approximately 16,000 to 16,700 new Class 8 trucks in 2022.

We expect to sell approximately 350 to 380 additional new Class 8 trucks in Canada in the third and fourth quarters of 2022.

We expect to sell approximately 200 additional new Class 8 trucks in Canada in the fourth quarter of 2022.

With respect to new U.S.

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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.

We expect to sell approximately 120 to 130 additional new Class 5 through 7 commercial vehicles in Canada in the third and fourth quarters of 2022.

We expect to sell approximately 60 additional new Class 5 through 7 commercial vehicles in Canada in the fourth quarter of 2022.

We expect to sell approximately 1,800 light-duty vehicles and approximately 6,800 to 7,200 used commercial vehicles in 2022.

We expect lease and rental revenue to increase 28% to 32% during 2022, compared to 2021.

We expect lease and rental revenues to increase 28% to 32% during 2022, compared to 2021.

We believe our Aftermarket Products and Services revenues will increase 28% to 33% in 2022, compared to 2021.

The above projections for new commercial vehicle sales will depend on our ability to obtain commercial vehicles from the manufacturers we represent and such projections could be negatively impacted by manufacturer allocation decisions and supply chain issues affecting manufacturers’

production. 

In addition, we are monitoring inflation and rising interest rates, which may negatively impact consumer spending and capital expenditures across a variety of industries we support. 

In addition, we continue to monitor inflation and rising interest rates, which may negatively impact consumer spending and capital expenditures across a variety of industries we support.

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”).

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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.

In connection with our business combinations, we record 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 six months of 2022 that would require a test for impairment.

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

If impaired, the carrying values of the assets are written down to fair value using Level 3 inputs.

Insurance Accruals

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Foreign Currency Transactions

The functional currency of our foreign subsidiary, RTC Canada, is its local currency. 

Results of operations for RTC Canada are translated in USD using the average exchange rate on a monthly basis during the quarter.

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The related translation adjustments are recorded as a separate component of our Consolidated Statements of Shareholders’

Equity in the line item Accumulated other comprehensive income. 

Results of Operations

The following discussion and analysis includes our historical results of operations for the three months and six months periods ended June 30, 2022 and 2021.

The following discussion and analysis includes our historical results of operations for the three months and nine months ended September 30, 2022 and 2021.

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

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

New and used commercial vehicle sales

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Depreciation and amortization

Gain (loss) on sale of assets

Gain on sale of assets

Operating income

Interest (income) expense, net

Interest expense, net

Income before income taxes

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Gross Profit:

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Aftermarket products and services sales

Lease and rental sales

Lease and rental

Finance and insurance

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 the absorption ratio (revenues 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 our absorption ratio (revenue in millions):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Vehicle unit sales:

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Used vehicles

Vehicle revenue:

Vehicle revenues:

New heavy-duty vehicles

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Used vehicle revenue

Other vehicle revenue:

Dealership absorption ratio:

Other vehicle revenues:

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 136.4% absorption ratio for the second quarter of 2022 and a 129.1% absorption ratio for the second quarter of 2021.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Total revenues increased $475.2 million, or 36.1%, in the second quarter of 2022, compared to the second quarter of 2021. 

This increase was primarily the result of strong freight demand which continues to drive strong demand for new and used commercial vehicles, the Summit acquisition and the consolidation of RTC Canada into our operating results, which increased revenues across all areas of our business.

Our Aftermarket Products and Services revenues increased $152.8 million, or 34.3%, in the second quarter of 2022, compared to the second quarter of 2021.

The increase in Aftermarket Parts and Services revenues was primarily a result of strong demand, in addition to the Summit acquisition and the consolidation of RTC Canada into our operating results.

Revenues from sales of new and used commercial vehicles increased $301.0 million, or 37.8%, in the second quarter of 2022, compared to the second quarter of 2021.

The increase in commercial vehicle revenues was primarily a result of strong demand, in addition to the Summit acquisition and the consolidation of RTC Canada into our operating results.

We sold 4,168 new Class 8 trucks in the second quarter of 2022, a 41.1% increase compared to 2,954 new Class 8 trucks in the second quarter of 2021. 

This increase in new Class 8 truck sales was primarily a result of strong demand for new commercial vehicles and the Summit acquisition and the consolidation of RTC Canada into our operating results.

We sold 2,815 new Class 4 through 7 commercial vehicles, including 279 buses, in the second quarter of 2022, a 0.4% decrease compared to 2,825 new medium-duty commercial vehicles, including 230 buses, in the second 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 408 light-duty vehicles in the second quarter of 2022, a 13.6% decrease compared to 472 light-duty vehicles sold in the second quarter of 2021.

We sold 1,629 used commercial vehicles in the second quarter of 2022, a 22.2% decrease compared to 2,094 used commercial vehicles sold in the second quarter of 2021. 

We believe used commercial vehicle demand and values will decrease as new commercial vehicle 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 $19.1 million, or 31.2%, in the second quarter of 2022, compared to the second quarter of 2021. 

Our commercial vehicle dealerships achieved a 136.2% absorption ratio for the third quarter of 2022 compared to a 134.0% absorption ratio for the third quarter of 2021.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Total revenues increased $597.8 million, or 47.2%, in the third quarter of 2022, compared to the third quarter of 2021.

This increase was primarily a result of strong freight demand which, continues to drive strong demand for new and used commercial vehicles, the Summit acquisition and the consolidation of RTC Canada into our operating results, which increased revenues across all areas of our business.

Our Aftermarket Products and Services revenues totaled $622.1 million in the third quarter of 2022, up 34.4% from the third quarter of 2021.

The increase in Aftermarket Parts and Services revenues was primarily a result of strong demand, inflation, the Summit acquisition and the consolidation of RTC Canada into our operating results.

Revenues from sales of new and used commercial vehicles increased $412.9 million, or 56.6%, in the third quarter of 2022, compared to the third quarter of 2021.

The increase in commercial vehicle revenues was primarily a result of strong demand, the Summit acquisition and the consolidation of RTC Canada into our operating results.

We sold 4,200 new Class 8 trucks in the third quarter of 2022, a 65.5% increase compared to 2,537 new Class 8 trucks sold in the third quarter of 2021.

This increase in new Class 8 truck sales was primarily a result of strong demand for new commercial vehicles, the Summit acquisition and the consolidation of RTC Canada into our operating results.

Class 8 retail truck sales totaled 67,939 units in the third quarter of 2022, an increase of 27.0% compared to the third quarter of 2021, according to ACT Research.

We sold 3,223 new Class 4 through 7 medium-duty commercial vehicles, including 537 buses, in the third quarter of 2022, a 15.4% increase compared to 2,792 new medium-duty commercial vehicles, including 410 buses, in the third quarter of 2021.

Our new Class 4 through 7 commercial vehicle sales increased due to strong demand for new commercial vehicles, the Summit acquisition and the consolidation of RTC Canada into our operating results.

New U.S. Class 4 through 7 retail commercial vehicle sales totaled 60,211 units in the third quarter of 2022, up 0.7% compared to the third quarter of 2021, according to ACT Research.

We sold 608 light-duty vehicles in the third quarter of 2022, a 68.4% increase compared to 361 light-duty vehicles sold in the third quarter of 2021.

We sold 1,763 used commercial vehicles in the third quarter of 2022, a 3.0% increase compared to 1,712 used commercial vehicles in the third quarter of 2021.

We believe used commercial vehicle demand and values will continue to decrease as new commercial vehicle production increases to a level adequate to meet customer demand.

Commercial vehicle lease and rental revenues increased $23.0 million, or 36.7%, in the third quarter of 2022, compared to the third quarter of 2021.

This increase in commercial vehicle lease and rental revenues was primarily a result of strong demand for rental commercial vehicles, the Summit acquisition and the consolidation of RTC Canada into our operating results.

Finance and insurance revenues increased $0.3 million, or 4.7%, in the second quarter of 2022, compared to the second quarter of 2021. 

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

Finance and insurance revenues increased $0.8 million, or 11.5%, in the third quarter of 2022, compared to the third quarter of 2021.

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

Gross profit increased $103.4 million, or 38.2%, in the second quarter of 2022, compared to the second quarter of 2021. 

This increase in gross profit is primarily due to strong demand for commercial vehicles and aftermarket services, the Summit acquisition and the consolidation of RTC Canada into our operating results. 

Gross profit as a percentage of sales increased to 20.9% in the second quarter of 2022, from 20.6% in the second quarter of 2021. 

Gross margins from our Aftermarket Products and Services operations increased to 38.6% in the second quarter of 2022, from 37.8% in the second quarter of 2021. 

Gross profit from our Aftermarket Products and Services operations increased to $231.0 million in the second quarter of 2022, from $168.4 million in the second quarter of 2021. 

This increase in gross profit from our Aftermarket Products and Services operations is primarily due to increases in parts pricing, increases in parts rebates from our parts suppliers, the Summit acquisition and the consolidation of RTC Canada into our operating results. 

Gross profit increased $99.1 million, or 35.1%, in the third quarter of 2022, compared to the third quarter of 2021.

Gross profit as a percentage of sales decreased to 20.5% in the third quarter of 2022, from 22.3% in the third quarter of 2021.

This decrease in gross profit as a percentage of sales is a result of a change in our product sales mix.

Commercial vehicle sales, a lower margin revenue item, increased as a percentage of total revenues to 61.3% in the third quarter of 2022, from 57.6% in the third quarter of 2021.

Aftermarket Services revenues, a higher margin revenue item, decreased as a percentage of total revenues to 33.4% in the third quarter of 2022, from 36.6% in the third quarter of 2021.

Gross margins from our Aftermarket Products and Services operations decreased to 39.1% in the third quarter of 2022, from 39.3% in the third quarter of 2021.

Gross profit for the Aftermarket Products and Services departments increased to $243.4 million in the third quarter of 2022, from $182.2 million in the third 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 63.6% of total gross profit from Aftermarket Products and Services operations in the second quarter of 2022 and 61.0% in the second quarter of 2021.

Service and collision center operations represented 36.4% of total gross profit from Aftermarket Products and Services operations in the second quarter of 2022 and 39.0% in the second quarter of 2021. 

We expect blended gross margins on Aftermarket Products and Services operations to range from 38.0% to 39.0% in 2022.

Gross margins on new Class 8 truck sales increased to 9.9% in the second quarter of 2022, from 9.1% in the second quarter of 2021.

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

Gross profits from parts sales represented 62.8% of total gross profit for Aftermarket Products and Services operations in the third quarter of 2022 and 62.4% in the third quarter of 2021.

Service and collision center operations represented 37.2% of total gross profit for Aftermarket Products and Services operations in the third quarter of 2022 and 37.6% in the third quarter of 2021.

Gross margins on new Class 8 truck sales increased to 9.9% in the third quarter of 2022, from 8.7% in the third quarter of 2021.

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

In 2022, we expect overall gross margins from new heavy-duty truck sales of approximately 8.8% to 9.9%.

Gross margins on new Class 4 through 7 commercial vehicle sales decreased to 7.3% in the second quarter of 2022, from 7.4% in the second quarter of 2021.

This decrease is primarily due to the mix of purchasers during the second quarter of 2022.

Gross margins on new Class 4 through 7 commercial vehicle sales slightly decreased to 7.9% in the third quarter of 2022, from 8.0% in the third quarter of 2021.

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 decreased to 10.6% in the second quarter of 2022, from 17.4% in the second 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 31.3% in the second quarter of 2022, from 21.2% in the second quarter of 2021.

Gross margins on used commercial vehicle sales decreased to 1.6% in the third quarter of 2022, from 19.7% in the third quarter of 2021.

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

We expect margins on used commercial vehicles to reach a range between 6.0% and 8.0% by the end of 2022.

Gross margins from truck lease and rental sales increased to 31.8% in the third quarter of 2022, from 25.1% in the third 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.

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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.

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

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

Selling, General and Administrative Expenses

Selling, General and Administrative (“SG&A”) expenses increased $40.6 million, or 22.0%, in the second quarter of 2022, compared to the second quarter of 2021.

This increase primarily resulted from increased general and administrative expense associated with the Summit acquisition and consolidation of RTC Canada into our operating results. 

SG&A expenses as a percentage of total revenues decreased to 12.6% in the second quarter of 2022, from 14.0% in the second 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 (Income) Expense, Net

Net interest (income) expense increased $3.4 million, or 1,594.3%, in the second quarter of 2022, compared to the second quarter of 2021.

Selling, General and Administrative (“SG&A”) expenses increased $62.7 million, or 34.9%, in the third quarter of 2022, compared to the third quarter of 2021.

This increase primarily resulted from increased general and administrative expense associated with the Summit acquisition and consolidation of RTC Canada into our operating results.

SG&A expenses as a percentage of total revenues decreased to 13.0% in the third quarter of 2022, from 14.2% in the third quarter of 2021.

Annual SG&A expenses as a percentage of total revenues have ranged from 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.

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 increased $0.8 million, or 6.3%, in the third quarter of 2022, compared to the third quarter of 2021.

Interest Expense, Net

Net interest expense increased $6.0 million, or 2,215.5%, in the third quarter of 2022, compared to the third quarter of 2021.

This increase in interest expense is a result of the increase in inventory levels and rising interest rates on our variable rate debt 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.

We expect net interest expense in 2022 to increase due to interest related to lease and rental borrowings and floor plan debt, 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 $65.4 million, or 87.5%, in the second quarter of 2022, compared to the second quarter of 2021.

Income taxes increased $12.8 million, or 76.7%, in the second quarter of 2022, compared to the second quarter of 2021.

We provided for taxes at a 21.1% effective rate in the second quarter of 2022 and 22.3% in the second quarter of 2021.

As a result of the factors described above, income before income taxes increased $28.7 million, or 31.2%, in the third quarter of 2022, compared to the third quarter of 2021.

Income taxes increased $7.4 million, or 33.1%, in the third quarter of 2022, compared to the third quarter of 2021.

We provided for taxes at a 24.79% effective rate in the third quarter of 2022 and 24.75% in the third quarter of 2021.

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

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Unless otherwise stated below, our variance explanations and future expectations with regards to the items discussed in this section are set forth in the discussion of the “Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021.”

Total revenues increased $806.6 million, or 31.7%, in the first six months of 2022, compared to the first six months of 2021.

Sales of new and used commercial vehicles increased $489.0 million, or 31.6%, in the first six months of 2022, compared to the first six months of 2021.

Aftermarket Products and Services revenues increased $280.3 million, or 32.5%, in the first six months of 2022, compared to the first six months of 2021.

We sold 7,696 new Class 8 heavy-duty trucks in the first six months of 2022, a 29.4% increase compared to 5,949 new Class 8 heavy-duty trucks in the first six months of 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

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, 2022 Compared to Three Months Ended September 30, 2021.

Total revenues increased $1,404.4 million, or 36.8%, in the first nine months of 2022, compared to the first nine months of 2021.

Aftermarket Products and Services revenues increased $439.4 million, or 33.2%, in the first nine months of 2022, compared to the first nine months of 2021.

Revenues from the sales of new and used commercial vehicles increased $901.8 million, or 39.7%, in the first nine months of 2022, compared to the first nine months of 2021.

We sold 11,896 new Class 8 heavy-duty trucks during the first nine months of 2022, a 40.2% increase compared to 8,486 new Class 8 heavy-duty trucks in the first nine months of 2021.

According to A.C.T.

Research, retail sales in the U.S.

Class 8 truck market increased 1.0% in the first six months of 2022, compared to the first six months of 2021.

We sold 4,956 new Class 4 through 7 medium-duty commercial vehicles, including 504 buses, in the first six months of 2022.

This represented a 3.9% decrease compared to 5,159 new Class 4 through 7 medium-duty commercial vehicles, including 370 buses, in the first six months of 2021.

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

decreased approximately 11.3% in the first six months of 2022, compared to the first six months of 2021.

We sold 889 new light-duty vehicles in the first six months of 2022, a 2.5% increase compared to 867 new light-duty vehicles sold in the first six months of 2021.

We sold 4,024 used commercial vehicles in the first six months of 2022, a 0.1% increase compared to 4,018 used commercial vehicles in the first six months of 2021.

Truck lease and rental revenues increased $32.3 million, or 27.0%, in the first six months of 2022, compared to the first six months of 2021.

Finance and insurance revenues increased $1.4 million, or 10.1%, in the first six months of 2022, compared to the first six months of 2021.

Gross profit increased $204.1 million, or 39.6%, in the first six months of 2022, compared to the first six months of 2021.

Gross profit as a percentage of sales was 21.5% in the first six months of 2022 and 20.2% in the first six months of 2021.

Gross margins from Aftermarket Products and Services operations increased to 38.5% in the first six months of 2022, from 37.4% in the first six months of 2021.

Gross profit for Aftermarket Products and Services was $440.1 million in the first six months of 2022, compared to $322.3 million in the first six months of 2021.

Gross profit from parts sales represented 63.1% of the total gross profit for Aftermarket Products and Services operations in the first six months of 2022 and 60.0% in the first six months of 2021.

Service and collision center operations represented 36.9% of the total gross profit for Aftermarket Products and Services operations in the first six months of 2022 and 40.0% in the first six months of 2021.

Gross margins on new Class 8 heavy-duty truck sales increased to 9.8% in the first six months of 2022, from 9.0% in the first six months of 2021.

Gross margins on new Class 4 through 7 medium-duty commercial vehicle sales increased to 7.8% in the first six months of 2022, from 7.3% in the first six months of 2021.

Gross margins on used commercial vehicle sales decreased to 13.6% in the first six months of 2022, from 17.7% in the first six months of 2021.

Gross margins from truck lease and rental sales increased to 31.6% in the first six months of 2022, from 19.4% in the first six months of 2021.

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

Research, new U.S.

Class 8 truck sales increased 9.3% in the first nine months of 2022, compared to the first nine months of 2021.

We sold 8,179 new Class 4 through 7 medium-duty commercial vehicles, including 1,041 buses, during the first nine months of 2022, a 2.9% increase compared to 7,951 new Class 4 through 7 medium-duty commercial vehicles, including 788 buses, in the first nine months of 2021.

Research estimates that unit sales of new Class 4 through 7 commercial vehicles, including buses, in the U.S decreased approximately 7.4% in the first nine months of 2022, compared to the first nine months of 2021.

We sold 1,497 new light-duty commercial vehicles during the first nine months of 2022, a 21.9% increase compared to 1,228 light-duty commercial vehicles in the first nine months of 2021.

We sold 5,787 used commercial vehicles during the first nine months of 2022, a 1.0% increase compared to 5,730 used commercial vehicles in the first nine months of 2021.

Truck lease and rental revenues increased $55.2 million, or 30.3%, in the first nine months of 2022, compared to the first nine months of 2021.

Finance and insurance revenues increased $2.2 million, or 10.6%, in the first nine months of 2022, compared to the first nine months of 2021.

Gross profit increased $303.2 million, or 38.0%, in the first nine months of 2022, compared to the first nine months of 2021.

Gross profit as a percentage of sales increased to 21.1% in the first nine months of 2022, from 20.9% in the first nine months of 2021.

Gross margins from our Aftermarket Products and Services operations increased to 38.8% in the first nine months of 2022, from 38.1% in the first nine months of 2021.

Gross profit for the Aftermarket Products and Services departments was $683.5 million in the first nine months of 2022, compared to $504.5 million in the first nine months of 2021.

Gross profits from parts sales represented 63.0% of total gross profit for Aftermarket Products and Services operations in the first nine months of 2022 and 61.0% in the first nine months of 2021.

Service and collision center operations represented 37.0% of total gross profit for Aftermarket Products and Services operations in the first nine months of 2022 and 39.0% in the first nine months of 2021.

Gross margins on new Class 8 truck sales increased to 9.9% in the first nine months of 2022, from 8.9% in the first nine months of 2021.

Gross margins on new Class 4 through 7 medium-duty commercial vehicle sales increased to 7.9% in the first nine months of 2022, from 7.5% in the first nine months of 2021.

Gross margins on used commercial vehicle sales decreased to 10.2% in the first nine months of 2022, from 18.4% in the first nine months of 2021.

Gross margins from truck lease and rental sales increased to 31.6% in the first nine months of 2022, from 21.3% in the first nine months of 2021.

Selling, General and Administrative Expenses

SG&A expenses increased $90.1 million, or 25.0%, in the first six months of 2022, compared to the first six months of 2021.

SG&A expenses equaled 13.4% of total revenue in the first six months of 2022, compared to 14.1% in the first six months of 2021.

Interest (Income) Expense, Net

Net interest expense increased $4.1 million, or 1,387.1%, in the first six months of 2022, compared to the first six months of 2021.

SG&A expenses increased $152.8 million, or 28.3%, in the first nine months of 2022, compared to the first nine months of 2021.

SG&A expenses equaled 13.3% of total revenue in the first nine months of 2022, and 14.1% in the first nine months of 2021.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $1.3 million, or 3.1%, in the first nine months of 2022, compared to the first nine months of 2021.

Interest Expense, Net

Net interest expense increased $10.1 million, or 1,783.7%, in the first nine months of 2022, compared to the first nine months of 2021.

Income before Income Taxes

Income before income taxes increased $129.1 million, or 98.3%, in the first six months of 2022, compared to the first six months of 2021.

Income before income taxes increased $157.8 million, or 70.7%, in the first nine months of 2022, compared to the first nine months of 2021.

Provision for Income Taxes

Income taxes increased $29.4 million, or 105.0%, in the first six months of 2022, compared to the first six months of 2021.

We provided for taxes at a 22.0% rate in the first six months of 2022 and a 21.3% rate in the first six months of 2021.

Income taxes increased $36.8 million, or 73.0%, in the first nine months of 2022, compared to the first nine months of 2021.

We provided for taxes at a 22.9% rate in the first nine months of 2022 and a 23.0% rate in the first nine months of 2021.

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 June 30, 2022, we had working capital of approximately $443.2 million, including $216.7 million in cash, available to fund our operations.

As of September 30, 2022, we had working capital of approximately $390.0 million available to fund our operations, including $219.5 million in cash.

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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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 on June 30, 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 June 30, 2022.

There were no advances outstanding under this secured line of credit on September 30, 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 September 30, 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 June 30, 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.

As of September 30, 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.

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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 second quarter of 2022, we paid a cash dividend of $10.5 million.

Additionally, on July 26, 2022, our Board of Directors declared a cash dividend of $0.21 per share of Class A and Class B Common Stock, to be paid on September 12, 2022, to all shareholders of record as of August 12, 2022.

We are currently under contract to construct a new facility in Pontoon Beach, Illinois at an estimated cost of $13.9 million.

During the third quarter of 2022, we paid a cash dividend of $11.5 million.

Additionally, on October 25, 2022, our Board of Directors declared a cash dividend of $0.21 per share of Class A and Class B Common Stock, to be paid on December 9, 2022, to all shareholders of record as of November 10, 2022.

The total dividend disbursement is estimated at approximately $11.5 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 November 30, 2021, we announced that our Board of Directors approved a new stock repurchase program authorizing management to repurchase, from time to time, up to an aggregate of $100.0 million of our shares of Class A Common Stock and/or Class B Common Stock. 

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

Repurchases, if any, will be made at times and in amounts as we deem appropriate and may be made through open market transactions at prevailing market prices, privately negotiated transactions or by other means in accordance with federal securities laws.

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

As of June 30, 2022, we had repurchased $58.7 million of our shares of common stock under the current stock repurchase program. 

As of September 30, 2022, we had repurchased $91.8 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.

We have no other material commitments for capital expenditures as of June 30, 2022.

We have no other material commitments for capital expenditures as of September 30, 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 increased by $68.5 million during the six months ended June 30, 2022 and increased by $3.9 million during the six months ended June 30, 2021.

Cash and cash equivalents increased by $71.4 million during the nine months ended September 30, 2022 and decreased by $52.4 million during the nine months ended September 30, 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 six months of 2022, operating activities resulted in net cash provided by operations of $58.2 million.

Net cash provided by operating activities primarily consisted of $202.7 million in net income, as well as non-cash adjustments related to depreciation and amortization of $95.1 million, stock-based compensation of $18.0 million and the benefit for deferred income tax expense of $4.1 million.

Cash provided by operating activities included an aggregate of $236.9 million net change in operating assets and liabilities.

Included in the net change in operating assets and liabilities were cash inflows of $33.3 million from the increase in accounts payable and $18.6 million from the increase in accrued liabilities, which was offset by cash outflows of $85.1 million from the increase in accounts receivable, $193.0 million from the increase in inventories, $1.9 million from the increase in other assets, and $8.8 million from the decrease in customer deposits.

During the first nine months of 2022, operating activities resulted in net cash provided by operations of $183.3 million.

Net cash provided by operating activities primarily consisted of $293.8 million in net income, as well as non-cash adjustments related to depreciation and amortization of $146.5 million, gain on sale of property and equipment, gain on joint venture and gain on business acquisition of $21.9 million, stock-based compensation of $21.6 million and the benefit for deferred income tax expense of $7.9 million.

Cash used by operating activities included an aggregate of $264.5 million net change in operating assets and liabilities.

Included in the net change in operating assets and liabilities were cash inflows of $44.1 million from the increase in accounts payable, $9.7 million from the increase in customer deposits and $25.5 million from the increase in accrued expenses, which was offset primarily by cash outflows of $264.7 million from the increase in inventories and $75.1 million from the increase in accounts receivable.

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

During the first six months of 2021, operating activities resulted in net cash provided by operations of $237.7 million.

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.

Cash provided by operating activities included an aggregate of $148.2 million net change in operating assets and liabilities.

Included in the net change in operating assets and liabilities were cash inflows of $76.8 million from the decrease in inventories, $12.0 million from the decrease in accounts receivable and $12.4 million from the increase in accounts payable, which was offset by cash outflows of $1.3 million from the increase in other assets, $26.2 million from the decrease in accrued liabilities and $23.7 million from the decrease in customer deposits.

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.

Cash Flows from Investing Activities

During the first six months of 2022, cash used in investing activities was $94.2 million. 

Cash flows used in investing activities consist primarily of cash used for capital expenditures and the purchase of the additional 30% equity interest in RTC Canada. 

Capital expenditures were $107.2 million during the first six 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 six months of 2021 included $71.4 million for additional units for the rental and leasing operations, the majority of which were directly offset by borrowings of long-term debt. 

Additionally, during the first six months of 2022, cash outflows consisted of $15.1 million related to the acquisition of the additional 30% equity interest in RTC Canada. 

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 six months of 2021, cash used in investing activities was $82.9 million. 

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

Capital expenditures were $84.4 million during the first six 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 six months of 2021 included $64.7 million for additional units for the rental and leasing operations, the majority of which were directly offset by borrowings of long-term debt. 

During the first nine months of 2022, cash used in investing activities was $168.2 million.

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

Capital expenditures were $175.2 million during the first nine months of 2022 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 2022 included $122.3 million for additional units for the rental and leasing operations.

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.

Cash Flows from Financing Activities

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

During the first six months of 2022, financing activities resulted in net cash used in financing of $104.6 million, primarily related to cash inflows of $8.1 million from the issuance of shares related to equity compensation plans, $190.5 million from net draws on floor plan notes payable, non-trade and borrowings of $571.3 million of long-term debt.

These cash inflows were offset by $582.3 million used for principal repayments of long-term debt and capital lease obligations, $8.6 million for taxes related to net share settlement of equity awards, $52.8 million used for repurchases of common stock and $21.6 million used for payment of cash dividends.

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

During the first six months of 2021, financing activities resulted in net cash used in financing of $151.0 million, primarily related to cash inflows of $3.9 million from the issuance of shares related to equity compensation plans and borrowings of $52.3 million of long-term debt.

These cash inflows were offset by $40.9 million from net payments on floor plan notes payable, non-trade, $135.6 million used for principal repayments of long-term debt and capital lease obligations, $10.8 million used for repurchases of common stock and $19.9 million used for payment of cash dividends.

During the first nine months of 2022, financing activities resulted in net cash provided in financing of $56.6 million, primarily related to $277.3 million from net draws on floor plan notes payable, non-trade, $695.2 million from borrowings of long-term debt and $11.1 million from the issuance of shares related to equity compensation plans.

These cash inflows were offset by cash outflows of $799.8 million used for principal repayments of long-term debt and capital lease obligations, $52.3 million used for repurchases of common stock, $8.7 million for taxes paid related to net share settlement of equity awards and $33.1 million used for payment of cash dividends.

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.

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We may terminate the commitments at any time.

On June 30, 2022, we had approximately $150.1 million outstanding under the WF Credit Agreement.

On September 30, 2022, we had approximately $73.1 million outstanding under the WF Credit Agreement.

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

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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 June 30, 2022, we had approximately $185.0 million outstanding under the PLC Agreement.

On September 30, 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 Floor Plan Credit Agreement with BMO Harris and the lenders signatory thereto.

Prior to the Floor Plan Credit Agreement, we financed the majority of all new commercial vehicle inventory and the loan value of our used commercial vehicle inventory under the Fourth Amended and Restated Floor Plan Credit Agreement with BMO Harris and the majority of such financings will continue to occur under the Floor Plan Credit Agreement.

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

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.

Borrowings under the Floor Plan Credit Agreement bear interest at an annual rate equal to (A) the greater of (i) zero and (ii) one month LIBOR rate, determined on the last day of the prior month, plus (B) 1.10% and are payable monthly.

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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 June 30, 2022, we had approximately $724.1 million outstanding under the Floor Plan Credit Agreement.

The average daily outstanding borrowings under the Floor Plan Credit Agreement were $574.6 million during the three months ended June 30, 2022.

On September 30, 2022, we had approximately $727.3 million outstanding under the Floor Plan Credit Agreement.

The average daily outstanding borrowings under the Floor Plan Credit Agreement were $611.6 million during the nine months ended September 30, 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.

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The RTC Canada Revolving Agreement expires September 14, 2026.

On June 30, 2022, we had approximately $66.6 million outstanding under the RTC Canada Revolving Agreement.

On September 30, 2022, we had approximately $48.9 million outstanding under the RTC Canada Revolving Agreement.

On July 15, 2022, RTC Canada entered into that certain Amended and Restated BMO Wholesale Financing and Security Agreement (the “RTC Canada Floor Plan Agreement”) with BMO.

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RTC Canada 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 credit limits set forth above with respect to new and used vehicles.

Advances under the RTC Canada Floor Plan Agreement bear interest per annum, payable on the first business day of each calendar month, at the Canadian Dollar Offered Rate (CDOR), plus 0.90% and in the case of an advance required to be made in USD dollars, at the London Interbank Offered Rate (LIBOR), plus 1.10%.

Advances under the RTC Canada Floor Plan Agreement bear interest per annum, payable on the first business day of each calendar month, at CDOR, plus 0.90% and in the case of an advance required to be made in USD dollars, at LIBOR, plus 1.10%.

The RTC Canada Floor Plan Agreement expires September 14, 2026.

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 June 30, 2022, our backlog of commercial vehicle orders was approximately $3,682.9 million, as compared to a backlog of commercial vehicle orders of approximately $2,258.9 million on June 30, 2021.

 This increase in our backlog is primarily due to the Summit acquisition and the consolidation of RTC Canada into our operating results, in addition 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. 

We include only confirmed orders in our backlog. 

However, such orders are subject to cancellation. 

In the event of order cancellation, we have no contractual right to the total revenues reflected in our backlog. 

The delivery time for a custom-ordered commercial vehicle varies depending on the truck specifications and demand for the particular model ordered. 

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

Orders from a number of our major fleet customers are included in our backlog as of June 30, 2022, and we expect to fill the majority of our backlog orders during 2022 and the first quarter of 2023, 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. 

On September 30, 2022, we had approximately $37.2 million outstanding under the RTC Canada Floor Plan Agreement.

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

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

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

On September 30, 2022, our backlog of commercial vehicle orders was approximately $3,300.1 million, compared to a backlog of commercial vehicle orders of approximately $2,720.2 million on September 30, 2021.

We include only confirmed orders in our backlog.

However, such orders are subject to cancellation.

In the event of order cancellation, we have no contractual right to the total revenues reflected in our backlog.

The delivery time for a custom-ordered commercial vehicle varies depending on the truck specifications and demand for the particular model ordered.

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

Orders from a number of our major fleet customers are included in our backlog as of September 30, 2022, and we expect to fill the majority of our backlog orders during 2022 and the first quarter of 2023, assuming that the manufacturers we represent can meet their current production schedule.

Our current backlog continues to be much higher than normal.

Our Truck Segment is moderately seasonal.

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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