What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 231 added, 446 removed, 531 unchanged (56% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Shares)

September 30,

(In Thousands, Except Shares and Per Share Amounts)

Current assets:

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Treasury stock, at cost:

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

2,041,809 Class A shares and 1,168,432 Class B shares in 2023;

and 1,626,777 Class A shares and 1,112,446 Class B shares in 2022

Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total Rush Enterprises, Inc.

9 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

New and used commercial vehicle sales

Aftermarket products and services sales

Lease and rental sales

Lease and rental

Finance and insurance

3 unchanged sentences

Aftermarket products and services sales

Lease and rental sales

Lease and rental

Total cost of products sold

3 unchanged sentences

Operating income

Other (expense) income

Interest expense, net

13 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Other comprehensive income (loss), net of tax:

Other comprehensive income, net of tax:

Foreign currency translation

Reclassification of currency translation related to equity method accounting

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

Other comprehensive income attributable to Rush Enterprises, Inc.

Comprehensive income

6 unchanged sentences

(In Thousands)

Class A Class B

Comprehensive Income (Loss)

Rush Enterprises, Inc.

Comprehensive

Shareholders’

1 unchanged sentence

Shareholders’

Income (Loss)

Balance, December 31, 2022

4 unchanged sentences

Common stock repurchases

Dividend Class A common stock

Dividend Class B common stock

Cash dividends declared on Class A common stock

Cash dividends declared on Class B common stock

Foreign currency translation adjustment

Balance, March 31, 2023

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

Common stock repurchases

Dividend Class A common stock

Dividend Class B common stock

Foreign currency translation adjustment

Reclassification of foreign currency translation related to equity method

Noncontrolling interest equity

Balance, June 30, 2022

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.

Comprehensive

Shareholders’

1 unchanged sentence

Shareholders’

Income (Loss)

Balance, December 31, 2021

4 unchanged sentences

Common stock repurchases

Dividend Class A common stock

Dividend Class B common stock

Other comprehensive income

Cash dividends declared on Class A common stock

Cash dividends declared on Class B common stock

Foreign currency translation adjustment

Balance, March 31, 2022

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

Common stock repurchases

Dividend Class A common stock

Dividend Class B common stock

Other comprehensive income

Balance, June 30, 2021

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)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Gain on sale of property and equipment

Gain on sale of property and equipment, net

Gain on joint venture transaction

Gain on business acquisition

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

Deferred income tax benefit

Stock-based compensation expense related to employee stock

options and employee stock purchases

Provision for deferred income tax expense

Change in accounts receivable, net

Change in inventories, net

Change in inventories

Change in prepaid expenses and other, net

7 unchanged sentences

Business disposition

Business acquisition, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities:

Draws (payments) on floor plan notes payable –

Draws on floor plan notes payable –

non-trade, net

2 unchanged sentences

Principal payments on finance lease obligations

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

Proceeds from issuance of shares relating to equity awards

Taxes paid related to net share settlement of equity awards

1 unchanged sentence

Common stock repurchased

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net cash provided by financing activities

Net increase in cash and cash equivalents

Effect of exchange rate on cash

3 unchanged sentences

Cash paid during the period for:

Income taxes, net of refunds

Income taxes paid (refund), net

Noncash investing and financing activities:

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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

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 attributable to the COVID-19 pandemic that are negatively affecting new commercial vehicle production and the availability of aftermarket parts.

The Company is unable to predict the impact that the COVID-19 pandemic will have on its future business and operating results due to numerous uncertainties, including the duration of the COVID-19 pandemic and its effect on global economic trends and the various supply chains serving the commercial vehicle industry.

Foreign Currency Transactions

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

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

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

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Equity in accumulated other comprehensive income (loss).

Equity Method Investment

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.

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.

See Note 13 –

Acquisitions in the Notes to the Financial Statements for further discussion.

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

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

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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 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.

As of March 31, 2023, the Company believes that there are no pending claims or litigation, individually or in the aggregate, that are reasonably likely to have a material adverse effect on its financial position or results of operations.

However, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations for the fiscal period in which such resolution occurred.

Earnings Per Share

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

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

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

Numerator for basic and diluted earnings per share –

Net income available to common shareholders

Denominator for basic earnings per share –

1 unchanged sentence

Effect of dilutive securities–

Employee and director stock options and restricted share awards

Employee stock options and restricted share awards

Denominator for diluted earnings per share –

2 unchanged sentences

Diluted earnings per common share and common share equivalents

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

September 30,

Nine Months Ended

September 30,

Weighted average anti-dilutive options

Options to purchase shares of common stock that were outstanding for the three months ended March 31, 2023 and 2022 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive are as follows (in thousands):

Anti-dilutive options –

weighted average

Stock Options and Restricted Stock Awards

2 unchanged sentences

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

Stock-based compensation expense, calculated using the Black-Scholes option-pricing model for employee stock options, and included in selling, general and administrative expense, was $ 3.6 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

Stock-based compensation expense, calculated using the Black-Scholes option-pricing model for employee stock options and included in selling, general and administrative expense, was $ 13.1 million for the three months ended March 31, 2023, and $ 13.8 million for the three months ended March 31, 2022.

As of March 31, 2023, the Company had $ 16.7 million of unrecognized compensation cost related to non-vested employee stock options to be recognized over a weighted-average period of 2.6 years and $ 21.6 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.6 years.

5  – 

Financial Instruments and Fair Value  

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

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The carrying values of the Company’s financial instruments approximate fair value due either to their short-term nature or existence of variable interest rates, which approximate market rates.

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

Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments as of March 31, 2023, and December 31, 2022.

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.

1 unchanged sentence

Accordingly, the Company concluded that the valuation measurement inputs of its long-term debt represent, at its lowest level, current market interest rates available to the Company for similar debt and the Company’s current credit standing.

The carrying amount of such debt approximates fair value.

Thus, the carrying amount of such debt approximates fair value.

Segment Information

10 unchanged sentences

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

The following table contains summarized information about reportable segment revenues, segment income or loss from continuing operations and segment assets for the periods ended September 30, 2022 and 2021 (in thousands):

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

As of and for the three months ended March 31, 2023

Revenues from external customers

2 unchanged sentences

Segment assets

For the nine months ended September 30, 2022

Revenues from external customers

Segment operating income

Segment income before taxes

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

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

Revenues from external customers

2 unchanged sentences

Segment assets

For the nine months ended September 30, 2021

Revenues from external customers

Segment operating income

Segment income before taxes

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 had unrecognized income tax benefits totaling $ 5.3 million as a component of accrued liabilities as of March 31, 2023 and December 31, 2022, the total of which, if recognized, would impact the Company’s effective tax rate.

An unfavorable settlement would require a charge to income tax expense and a favorable resolution would be recognized as a reduction to income tax expense.

The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense.

The Company had approximately $ 279,000 accrued for the payment of interest as of September 30, 2022 and December 31, 2021.

The Company had approximately $ 302,000 accrued for the payment of interest as of March 31, 2023 and December 31, 2022.

No amounts were accrued for penalties.

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

As of September 30, 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.

As of March 31, 2023, the tax years ended December 31, 2019 through 2022 remained subject to audit by federal tax authorities, and the tax years ended December 31, 2018 through 2022, remained subject to audit by state tax authorities.

The Company’s non-lease and rental revenues are primarily generated from the sale of finished products to customers.

Those sales predominantly contain a single delivery element and revenue from such sales is recognized when the customer obtains control, which is typically when the finished product is delivered to the customer.

1 unchanged sentence

the sale of new and used commercial vehicles, arrangement of associated commercial vehicle financing and insurance contracts, the performance of commercial vehicle repair services and the sale of commercial vehicle parts.

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

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

September 30,

Nine Months Ended

September 30,

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 ended March 31, 2023 and 2022 (in thousands):

March 31, 2023

March 31, 2022

Commercial vehicle sales revenue

5 unchanged sentences

All of the Company's performance obligations and associated revenues are generally transferred to customers at a point in time.

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

The Company did not have any material contract assets or contract liabilities on the balance sheet as of March 31, 2023.

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

Lease of Vehicles as Lessor

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

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

The Company does not separate lease and nonlease components.

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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

September 30,

Nine Months Ended

September 30,

The receivable for sales-type leases as of March 31, 2023 was $ 6.6 million, compared to $ 6.0 million as of December 31, 2022, and is reflected in Other Assets on the Consolidated Balance Sheet.

Lease and rental income during the three months ended March 31, 2023 and March 31, 2022 consisted of the following (in thousands):

March 31, 2023

March 31, 2022

Minimum rental payments

Nonlease payments

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income

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

2 unchanged sentences

Balance as of March 31, 2023

Reclassification of currency translation related to equity method of RTC Canada

Foreign currency translation adjustment

Balance as of June 30, 2022

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.

1 unchanged sentence

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

The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive loss.

The Company reclassified the foreign currency translation adjustment related to its previously held equity investment in RTC Canada into net income upon its acquisition of a majority equity interest according to ASC 830-30, Foreign Currency Matters.

The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive loss and the statement of comprehensive income.

Accounts Receivable and Allowance for Credit Losses

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Accounts receivable consists primarily of commercial vehicle sales receivables, manufacturers’

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

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

The Company maintains an allowance for credit losses based on the probability of default, its historical rate of losses, aging and current economic conditions.

1 unchanged sentence

These write-offs are charged against the allowance for credit losses.

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

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

Provision for

September 30,

Allowance, net

of Recoveries

Commercial vehicle receivables

2 unchanged sentences

Other receivables

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.

The Company financed approximately $ 102.0 million of the purchase price under its floor plan and lease and rental truck financing arrangements and the remainder of the purchase price was paid in cash.

In addition, the Company purchased certain real property owned by Summit for a purchase price of approximately $ 57.0 million, which was paid in cash.

The purchase price allocation has not yet been finalized for the Summit acquisition.

The Company is currently working with Summit to obtain additional information 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 Summit.

The operations of Summit are included in the accompanying consolidated financial statements from the date of the acquisition.

The preliminary purchase price was allocated based on the fair values of the assets and liabilities at the date of acquisition as follows (in thousands):

Franchise rights

Property and equipment, including real estate

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.

The following acquisitions, unless otherwise noted, were considered business combinations accounted for under ASC 805, Business Combinations .

Pro forma information is not included in accordance with ASC 805 since no acquisitions were considered material individually or in the aggregate.

On November 7, 2022, the Company acquired certain assets of Scheppers International Truck Center, Inc., which included real estate and an International truck franchise in Jefferson City, Missouri, along with commercial vehicle and parts inventory.

The transaction was valued at approximately $ 6.8 million, with the purchase price paid in cash.

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.

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Notes payable

Franchise rights

Equity investment in RTC Canada

2 unchanged sentences

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.

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.

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

1 unchanged sentence

Prior to May 2, 2022, the Company accounted for its 50 % equity interest in RTC Canada as an equity-method investment.

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. 

Subsequent to the Company’s acquisition of the additional 30 % equity interest on May 2, 2022, operations of RTC Canada are included in the accompanying consolidated financial statements.

Management ’

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is a registered trademark of Isuzu Motors Limited.

 Ford ®

is a registered trademark of Ford Motor Company.

Dennis Eagle ®

is a registered trademark of Dennis Eagle Limited.

Cummins ®

7 unchanged sentences

The Truck Segment includes our operation of a network of commercial vehicle dealerships under the name “Rush Truck Centers.”

Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, IC Bus and Blue Bird.

Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, Dennis Eagle, IC Bus and Blue Bird.

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

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

COVID-19  

Pandemic  

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.

Outlook                   

Research Co., LLC (“A.

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

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

Class 8 retail truck sales to be 259,018 units in 2023, which would represent a 0.1% decrease compared to 2022.

We expect our U.S.

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This market share percentage would result in the sale of approximately 16,000 to 17,500 new Class 8 trucks in 2023.

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

Additionally, we expect to sell approximately 750 new Class 8 trucks in Canada in 2023.

With respect to new U.S.

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

Research currently forecasts sales to be 230,975 units in 2022, which would represent a 7.5% decrease compared to 2021. 

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

Research currently forecasts sales to be 253,600 units in 2023, which would represent an 8.6% increase compared to 2022. 

We expect our U.S.

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This market share percentage would result in the sale of approximately 11,500 to 13,000 new Class 4 through 7 commercial vehicles in 2023.

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 revenues to increase 28% to 32% during 2022, compared to 2021.

Additionally, we expect to sell approximately 300 new Class 5 through 7 commercial vehicles in Canada in 2023.

We expect to sell approximately 1,800 to 2,000 light-duty vehicles and approximately 6,500 to 7,500 used commercial vehicles in 2023.

We expect lease and rental revenue to increase 9% to 11% during 2023, compared to 2022.

This projected increase in lease and rental revenue in 2023, compared to 2022, is primarily related to strong demand for lease commercial vehicles and the consolidation of RTC Canada into our operating results.

We believe our Aftermarket Products and Services revenues will increase 9% to 12% in 2023, compared to 2022.

Although inflation on parts pricing is beginning to moderate, we are projecting an increase in Aftermarket Products and Services revenues in 2023, compared to 2022, primarily due to price increases in the second half of 2022 by the manufacturers of parts we sell and the consolidation of RTC Canada into our operating results.

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’

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”).

In addition, all of the above projections for new commercial vehicle sales, lease and rental revenues and Aftermarket Products and Services revenues include RTC Canada.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

There can be no assurance that actual results will not differ from those estimates.

We believe the following accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Inventories are stated at the lower of cost or net realizable value.

Cost is determined by specific identification of new and used commercial vehicle inventory and by the first-in, first-out method for tires, parts and accessories.

As the market value of our inventory typically declines over time, reserves are established based on historical loss experience and market trends.

These reserves are charged to cost of sales and reduce the carrying value of our inventory on hand.

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

Purchase Price Allocation, Intangible Assets and Goodwill

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

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

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

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

In connection with our business combinations, we 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 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

We are partially self-insured for a portion of the claims related to our property and casualty insurance programs, which requires us to make estimates regarding expected losses to be incurred.

We engage a third-party administrator to assess any open claims and we adjust our accrual accordingly on a periodic basis.

We are also partially self-insured for a portion of the claims related to our workers’

compensation and medical insurance programs.

We use actuarial information provided from third-party administrators to calculate an accrual for claims incurred, but not reported, and for the remaining portion of claims that have been reported.

Changes in the frequency, severity and development of existing claims could influence our reserve for claims and financial position, results of operations and cash flows.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to calculate our self-insured liabilities.

However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

Accounting for Income Taxes

Management’s judgment is required to determine the provisions for income taxes and to determine whether deferred tax assets will be realized in full or in part.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

When it is more likely than not that all or some portion of specific deferred income tax assets will not be realized, a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable.

Accordingly, the facts and financial circumstances impacting deferred income tax assets are reviewed quarterly and management’s judgment is applied to determine the amount of valuation allowance required, if any, in any given period.

Our income tax returns are periodically audited by tax authorities.

These audits include questions regarding our tax filing positions, including the timing and amount of deductions.

In evaluating the exposures associated with our various tax filing positions, we adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.

Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions.

Our effective income tax rate is also affected by changes in tax law, the level of earnings and the results of tax audits.

Although we believe that the judgments and estimates are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

An unfavorable tax settlement would generally require use of our cash and result in an increase in our effective income tax rate in the period of resolution.

A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution.

Our income tax expense includes the impact of reserve provisions and changes to reserves that we consider appropriate, as well as related interest.

Revenue Recognition

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

Revenue from Contracts with Customers ( “

Topic 606 ”

) , we perform the following five steps:

(i) identify the contract with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) we satisfy a performance obligation.  We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.  At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations.

We then assess whether each promised good or service is distinct and recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.  

We lease commercial vehicles and real estate under finance and operating leases.

We determine whether an arrangement is a lease at its inception.

For leases with terms greater than twelve months, we record a lease asset and liability at the present value of lease payments over the term.

Many of our leases include renewal options and termination options that are factored into our determination of lease payments when appropriate.

When available, we use the rate implicit in the lease to discount lease payments to present value;

however, most of our leases do not provide a readily determinable implicit rate.

Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

We lease commercial vehicles that we own to customers.

Lease and rental revenue is recognized over the period of the related lease or rental agreement.

Variable rental revenue is recognized when it is earned.

Allowance for Credit Losses

All trade receivables are reported on the consolidated balance sheet at their cost basis adjusted for any write-offs and net of allowances for credit losses.

We maintain allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of our receivables after considering current market conditions and estimates for supportable forecasts, when appropriate.

The estimate is a result of our ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in each of our receivable portfolios (commercial vehicle receivables, manufacturers’

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

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

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

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

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.

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

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.

The preparation of our interim unaudited consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities in our interim unaudited consolidated financial statements and accompanying notes.

In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

We evaluate our estimates, judgments and assumptions on an ongoing basis, and while we believe that our estimates, judgments and assumptions are reasonable, they are based upon information available at the time.

Actual results might differ from these estimates under different assumptions or conditions.

Our significant accounting policies are discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Critical Accounting Policies and Estimates" in our Form 10-K.

There were no material changes to our significant accounting policies.

Results of Operations

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:

The following discussion and analysis includes our historical results of operations for the three months ended March 31, 2023 and 2022.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

New and used commercial vehicle sales

Aftermarket products and services sales

Lease and rental sales

Parts and service sales

Lease and rental

Finance and insurance

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Gross Profit:

New and used commercial vehicle sales

Aftermarket products and services sales

Parts and service sales

Lease and rental

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Total gross profit

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

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Vehicle unit sales:

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Other vehicle revenues:

Absorption ratio:

Dealership absorption ratio:

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

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to be of critical importance.

Absorption ratio is calculated by dividing the gross profit from our Aftermarket Products and Services departments by the overhead expenses of all of a dealership’s departments, except for the selling expenses of the new and used commercial vehicle departments and carrying costs of new and used commercial vehicle inventory.

Our absorption ratio is calculated by dividing the gross profit from our Aftermarket Products and Services departments by the overhead expenses of all of a dealership’s departments, except for the selling expenses of the new and used commercial vehicle departments and carrying costs of new and used commercial vehicle inventory.

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

Our commercial vehicle dealerships achieved a 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.

Our commercial vehicle dealerships achieved a 136.5% absorption ratio for the first quarter of 2023, compared to a 136.3% absorption ratio for the first quarter of 2022.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Total revenues increased $348.6 million, or 22.3%, in the first quarter of 2023, compared to the first quarter of 2022.

This increase was primarily the result of strong demand for new commercial vehicles and the increase in production of commercial vehicles from the manufacturers we represent.

In addition, the consolidation of RTC Canada into our operating results increased revenues across all areas of our business.

Our Aftermarket Products and Services revenues increased $105.0 million, or 19.3%, in the first quarter of 2023, compared to the first quarter of 2022.

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

Revenues from sales of new and used commercial vehicles increased $226.0 million, or 24.2%, in the first quarter of 2023, compared to the first quarter of 2022.

The increase in new commercial vehicle revenues was primarily a result of strong demand, the increase in production of commercial vehicles from the manufacturers we represent and the consolidation of RTC Canada into our operating results.

We sold 4,365 new Class 8 trucks in the first quarter of 2023, a 23.7% increase compared to 3,528 new Class 8 trucks in the first quarter of 2022.

The increase in new Class 8 truck sales was primarily a result of strong demand, the increase in production of commercial vehicles from the manufacturers we represent and the consolidation of RTC Canada into our operating results.

We sold 3,038 new Class 4 through 7 commercial vehicles, including 332 buses, in the first quarter of 2023, a 41.9% increase compared to 2,141 new medium-duty commercial vehicles, including 193 buses, in the first quarter of 2022.

Our new Class 4 through 7 commercial vehicle sales increased due to strong demand, the increase in production of commercial vehicles from the manufacturers we represent and the consolidation of RTC Canada into our operating results.

We sold 504 new light-duty vehicles in the first quarter of 2023, a 4.8% increase compared to 481 new light-duty vehicles in the first quarter of 2022.

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

We sold 1,684 used commercial vehicles in the first quarter of 2023, a 29.7% decrease compared to 2,395 used commercial vehicles in the first quarter of 2022.

The decrease in used commercial vehicle sales was primarily the result of the decreased demand for used commercial vehicles resulting from the increased supply of new commercial vehicles.

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 $0.8 million, or 11.5%, in the third quarter of 2022, compared to the third quarter of 2021.

Commercial vehicle lease and rental revenues increased $15.3 million, or 21.5%, in the first quarter of 2023, compared to the first quarter of 2022.

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

Finance and insurance revenues decreased $1.0 million, or 12.7%, in the first quarter of 2023, compared to the first quarter of 2022.

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

Gross profit increased $99.1 million, or 35.1%, in the third quarter of 2022, compared to the third 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 decreased to 20.5% in the third quarter of 2022, from 22.3% in the third quarter of 2021.

We expect finance and insurance revenues to fluctuate proportionately with our new and used commercial vehicle sales in 2023.

Other revenue increased $3.2 million, or 60.1%, in the first quarter of 2023, compared to the first quarter of 2022.

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

Gross profit increased $53.3 million, or 15.4%, in the first quarter of 2023, compared to the first quarter of 2022.

Gross profit as a percentage of sales decreased to 20.9% in the first quarter of 2023, from 22.1% in the first quarter of 2022.

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.

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.

Commercial vehicle sales, a lower margin revenue item, increased as a percentage of total revenues to 60.8% in the first quarter of 2023, from 59.9% in the first quarter of 2022.

Aftermarket Services revenues, a higher margin revenue item, decreased as a percentage of total revenues to 33.9% in the first quarter of 2023, from 34.8% in the first quarter of 2022.

Gross margins from our Aftermarket Products and Services operations decreased to 38.0% in the first quarter of 2023, compared to 38.5% in the first quarter of 2022.

This decrease is primarily related to inflation beginning to moderate with respect to parts pricing.

Gross profit from our Aftermarket Products and Services operations increased to $246.1 million in the first quarter of 2023, from $209.1 million in the first quarter of 2022.

This increase is primarily related to the consolidation of RTC Canada into our operating results and strong parts and service demand.

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

Gross profits from parts sales represented 62.8% 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.

Gross profits from parts sales represented 61.4% of total gross profit for Aftermarket Products and Services operations in the first quarter of 2023 and 59.5% in the first quarter of 2022.

Service and collision center operations represented 38.6% of total gross profit for Aftermarket Products and Services operations in the first quarter of 2023 and 40.5% in the first quarter of 2022.

We expect blended gross margins on Aftermarket Products and Services operations to range from 37.5% to 38.5% in 2023.

Gross margins on new Class 8 truck sales increased to 10.3% in the first quarter of 2023, from 9.7% in the first quarter of 2022.

This increase was primarily due to strong demand for new Class 8 trucks and the mix of purchasers during the first quarter of 2023.

In 2023, 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 slightly decreased to 7.9% in the third quarter of 2022, from 8.0% in the third quarter of 2021.

Gross margins on new Class 4 through 7 commercial vehicle sales increased to 8.7% in the first quarter of 2023, from 8.6% in the first quarter of 2022.

This increase was primarily due to the mix of purchasers during the first quarter of 2023.

For 2023, 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 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.

In September of 2021, we entered into a credit agreement (“the WF Credit Agreement”) with the lenders signatory thereto (the “WF Lenders”) and Wells Fargo Bank, National Association (“WF”), as Administrative Agent (in such capacity, the “WF Agent”) that allows us to finance a portion of our Idealease lease and rental fleet through a general borrowing facility.

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

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

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

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

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

Gross margins on used commercial vehicle sales decreased to 5.6% in the first quarter of 2023, from 15.9% in the first quarter of 2022.

This decrease was primarily due to declining used commercial vehicle values as new Class 8 vehicle production increased during 2022.

We expect margins on used commercial vehicles to return to our historical range of between 8.0% and 10.0% in 2023.

Gross margins from truck lease and rental sales decreased to 30.2% in the first quarter of 2023, from 31.9% in the first quarter of 2022.

This decrease is primarily related to a slight decrease in rental utilization.

We expect gross margins from lease and rental sales of approximately 29.0% to 31.0% during 2023.

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Selling, General and Administrative Expenses

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.

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.

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.

Selling, General and Administrative (“SG&A”) expenses increased $32.4 million, or 14.4%, in the first quarter of 2023, compared to the first quarter of 2022.

This increase primarily resulted from increased personnel expense and increased selling expense, compared to the first quarter of 2022, and in addition, increased general and administrative expense associated with consolidation of RTC Canada into our operating results.

SG&A expenses as a percentage of total revenues decreased to 13.4% in the first quarter of 2023, from 14.4% in the first quarter of 2022.

Annual SG&A expenses as a percentage of total revenues have ranged from approximately 12.4% to 14.4% over the last five years.

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

For 2023, we expect SG&A expenses as a percentage of total revenues to range from 13.0% to 14.0%.

For 2023, 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.

Other income decreased $11.7 million, or 83.3%, in the first quarter of 2023, compared to the first quarter of 2022.

The $12.5 million gain realized on Cummins’

acquisition of a 50% equity interest in Momentum Fuel Technologies is included in Other income in the first quarter of 2022.

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.

Net interest expense increased $9.8 million, or 801.0%, in the first quarter of 2023, compared to the first quarter of 2022.

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 2022.

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.

We expect net interest expense in 2023, compared to 2022, to increase due to interest related to our working capital lines of credit 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 $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.

As a result of the factors described above, income from continuing operations before income taxes decreased $1.2 million, or 1.0%, in the first quarter of 2023, compared to the first quarter of 2022.

Income taxes increased $0.5 million, or 1.6%, in the first quarter of 2023, compared to the first quarter of 2022.

We provided for taxes at a 23.8% effective rate in the first quarter of 2023 and 23.2% in the first quarter of 2022.

We expect our effective tax rate to be approximately 23.0% to 24.0% of pretax income in 2023.

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

As of March 31, 2023, we had working capital of approximately $460.9 million, including $226.3 million in cash, available to fund our operations.

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

From time to time, we utilize our excess cash on hand to pay down our outstanding borrowings under our floor plan credit agreement with BMO Harris Bank N.A.

(“BMO Harris”) (the “Floor Plan Credit Agreement”) and the WF Credit Agreement.

The resulting interest earned on the Floor Plan Credit Agreement is recognized as an offset to our interest expense.

From time to time, we utilize our excess cash on hand to pay down our outstanding borrowings under various credit agreements.

The resulting interest earned on the floor plan credit agreement with BMO Harris Bank N.A.

(“BMO Harris”) (the “Floor Plan Credit Agreement”) is recognized as an offset to our interest expense.

We continually evaluate our liquidity and capital resources based upon:

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We have a secured line of credit that provides for a maximum borrowing of $20.0 million.

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 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.

There were no advances outstanding under this secured line of credit on March 31, 2023, however, $18.1 million was pledged to secure various letters of credit related to self-insurance products, leaving $1.9 million available for future borrowings as of March 31, 2023.

Our long-term debt, floor plan financing agreements and the credit agreement with Wells Fargo Bank, National Association 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 March 31, 2023, 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 2023.

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.

We are currently under contract to construct a new facility in the St.

Louis, Illinois area at an estimated cost of $13.9 million.

During the first quarter of 2023, we paid a cash dividend of $12.1 million.

Additionally, on April 24, 2023, 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 June 9, 2023, to all shareholders of record as of May 10, 2023.

The total dividend disbursement is estimated at approximately $11.4 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.

On December 2, 2022, 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 $150.0 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, 2022.

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

As of September 30, 2022, we had repurchased $91.8 million of our shares of common stock under the current stock repurchase program.

As of March 31, 2023, we had repurchased $31.1 million of our shares of common stock under the current stock repurchase program.

The current stock repurchase program expires on December 31, 2023, 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 September 30, 2022.

We have no other material commitments for capital expenditures as of March 31, 2023.

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 $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.

The following table summarizes our cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net increase (decrease) in cash

Cash Flows from Operating Activities

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

During 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.

During the first quarter of 2023, operating activities resulted in net cash provided by operations of $92.5 million.

Net cash provided by operating activities primarily consisted of $90.8 million in net income, as well as non-cash adjustments related to depreciation and amortization of $53.9 million, deferred income tax provision of $3.2 million and stock-based compensation of $13.1 million.

Cash provided by operating activities included an aggregate of $65.2 million net change in operating assets and liabilities.

Included in the net change in operating assets and liabilities was primarily cash outflows of $9.0 million from the increase in accounts receivable, $52.8 million from the increase in inventory, $15.9 million from the decrease in customer deposits and $11.5 million from the decrease in accrued expenses, which were offset by cash inflows of $27.1 million from the net increase in accounts payable.

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

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

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

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

Net cash provided by operating activities primarily consisted of $92.5 million in net income adjusted by the gain of $12.5 million related to Cummins, Inc.’s acquisition of a 50% equity interest in Momentum Fuel Technologies, as well as non-cash adjustments related to depreciation and amortization of $45.8 million, deferred income tax provision of $1.0 million and stock-based compensation of $13.8 million.

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

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

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

Cash Flows from Investing Activities

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.

During the first quarter of 2023, cash used in investing activities totaled $95.5 million.

Cash flows used in investing activities consist primarily of cash used for capital expenditures within acquisition of property and equipment.

Capital expenditures totaled $90.4 million during the first quarter of 2023 and consisted primarily of purchases of property and equipment, improvements to our existing dealership facilities and $75.2 million for purchases of rental and lease vehicles for the rental and leasing operations.

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

Cash flows used in investing activities consist primarily of cash used for capital expenditures within acquisition of property and equipment.

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

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

Cash Flows from Financing Activities

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

During the first nine months of 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.

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

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

During the first quarter of 2023, financing activities provided $28.3 million in net cash flow.

Cash outflows were primarily related to $275.3 million used for principal repayments of long-term debt and finance lease obligations, $24.0 million used for the repurchase of our common stock and $12.1 million used for the payment of cash dividends.

These cash outflows were offset by cash inflows related to borrowings of $257.7 million of long-term debt and $82.6 million used for net draws on floor plan (non-trade).

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

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

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

On September 14, 2021, we entered into the WF Credit Agreement with the lenders signatory thereto (the “WF Lenders”) and Wells Fargo Bank, National Association (“WF”), as Administrative Agent (in such capacity, The “WF Agent”) which was amended effective November 30, 2022.

Pursuant to the terms of the WF Credit Agreement (as amended), the WF Lenders have agreed to make up to $175.0 million of revolving credit loans for certain of our capital expenditures, including commercial vehicle purchases for our Idealease leasing and rental fleet, and general working capital needs.

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

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

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

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

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

We may terminate the commitments at any time.

On 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.

On March 31, 2023, we had approximately $50.0 million outstanding under the WF Credit Agreement.

On October 1, 2021, we entered into that certain Amended and Restated Inventory Financing and Purchase Money Security Agreement with PACCAR Leasing Company (“PLC”), a division of PACCAR Financial Corp.

(the “PLC Agreement”).

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

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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 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. 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.

On March 31, 2023, we had approximately $150.0 million outstanding under the PLC Agreement.

Most of our commercial vehicle purchases are made on terms requiring payment to the manufacturer within 15 to 60 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.

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

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

Loans under the Floor Plan Credit Agreement for the purchase of used inventory are limited to $150.0 million and loans for working capital purposes are limited to $200.0 million.

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

On 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.

On March 31, 2023, we had approximately $857.5 million outstanding under the Floor Plan Credit Agreement.

The average daily outstanding borrowings under the Floor Plan Credit Agreement were $780.9 million during the three months ended March 31, 2023.

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.

On May 31, 2022, RTC Canada entered into that certain BMO Revolving Lease and Rental Credit Agreement (the “RTC Canada Revolving Agreement”) with Bank of Montreal (“BMO”).

Pursuant to the terms of the RTC Canada Revolving Agreement, BMO agreed to make up to $140.0 million of revolving credit loans to finance certain of RTC Canada’s capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through RTC Canada’s Idealease franchise.

Advances under the RTC Canada Revolving Agreement bear interest per annum, payable on the first business day of each calendar month, at the Canadian Dollar Offered Rate (CDOR), plus 1.35%.

The RTC Canada Revolving Agreement expires September 14, 2026.

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.

On May 31, 2022, RTC Canada entered into that certain BMO Revolving Lease and Rental Credit Agreement (the “RTC Canada Revolving Credit Agreement”) with BMO.

Pursuant to the terms of the RTC Canada Revolving Credit Agreement, BMO agreed to make up to $120.0 million CAD of revolving credit loans to finance certain of RTC Canada’s capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through RTC Canada’s Idealease franchise, with an additional $20.0 million CAD available upon the request of RTC Canada and consent of BMO.

Advances under the RTC Canada Revolving Credit Agreement bear interest per annum, payable on the first business day of each calendar month, at the Canadian Offered Dollar Rate (“CDOR”), plus 1.35%.

The RTC Canada Revolving Credit Agreement expires September 14, 2026.

On March 31, 2023, we had approximately $84.4 million CAD outstanding under the RTC Canada Revolving Credit 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 Bank of Montreal (“BMO”).

Pursuant to the terms of the Agreement, BMO agreed to make up to $116.7 million CAD of revolving credit loans to finance RTC Canada’s purchase of new and used vehicle inventory.

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

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

On March 31, 2023, we had approximately $63.0 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.

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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.

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.

On March 31, 2023, our backlog of commercial vehicle orders was approximately $4,209.9 million, compared to a backlog of commercial vehicle orders of approximately $3,441.4 million on March 31, 2022.

This increase in our backlog is primarily due to strong demand for new commercial vehicles and production constraints experienced by the manufacturers we represent.

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

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

Orders from a number of our major fleet customers are included in our backlog as of September 30, 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.

Orders from a number of our major fleet customers are included in our backlog as of March 31, 2023, and we expect to fill the majority of our backlog orders during 2023, assuming that the manufacturers we represent can meet their current production schedule.

Our current backlog continues to be much higher than normal.

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.

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

Our Truck Segment is moderately seasonal.

Seasonal effects on new commercial vehicle sales related to the seasonal purchasing patterns of any single customer type are mitigated by the diverse geographic locations of our dealerships and our diverse customer base, including regional and national fleets, local and state governments, corporations and owner-operators.

However, commercial vehicle Aftermarket Products and Services operations historically have experienced higher sales volumes in the second and third quarters.

However, Aftermarket Products and Services operations historically have experienced higher sales volumes in the second and third quarters.

Our business is dependent on a number of factors including general economic conditions, fuel prices, interest rate fluctuations, credit availability, environmental and other government regulations and customer business cycles.

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two additional states have since signed.

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

California, Colorado, Nevada, North Carolina and Virginia.

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

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

California, Colorado, Nevada, New Mexico, North Carolina and Virginia.

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

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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