RUSH ENTERPRISES INC \TX\ 10-K

Item 1. Business References herein to “the Company,” “Rush Enterprises,” “we,” “our” or “us” mean Rush Enterprises, Inc., a Texas corporation, and its subsidiaries unless the context requires otherwise. Access to Company Information We electronically file annual reports, quarterly reports, proxy statements and other reports and information statements with the SEC. You may read and copy any of the materials that we have filed with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. You may obtain information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also available to you on the SEC’s website at www.sec.gov. We make certain of our SEC filings available, free of charge, through our website, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports. These filings are available as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Our website address is www.rushenterprises.com. The information contained on our website, or on other websites linked to our website, is not incorporated into this report or otherwise made part of this report. General Rush Enterprises, Inc. was incorporated in Texas in 1965 and consists of one reportable segment, the Truck Segment, and conducts business through its subsidiaries. Our principal offices are located at 555 IH 35 South, Suite 500, New Braunfels, Texas 78130. We are a full-service, integrated retailer of commercial vehicles and related services. 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, Blue Bird and Dennis Eagle. Through our strategically located network of Rush Truck Centers, we provide one-stop service for the needs of our commercial vehicle customers, including retail sales of new and used commercial vehicles, aftermarket parts sales, service and repair facilities, financing, leasing and rental, and insurance products. Our Rush Truck Centers are principally located in high traffic areas throughout the United States and Ontario, Canada. Since commencing operations as a Peterbilt heavy-duty truck dealer in 1966, we have grown to operate over 125 franchised Rush Truck Centers in 23 states. In 2019, we purchased a 50% equity interest in an entity in Canada, Rush Truck Centres of Canada Limited (“RTC Canada”) and on May 2, 2022, we purchased an additional 30% equity interest in RTC Canada that increased our equity interest to 80%. RTC Canada currently owns and operates 14 International dealership locations in Ontario. Prior to acquiring the additional 30%, we accounted for the equity interest in RTC Canada using the equity method of accounting. Now, the operating results of RTC Canada are consolidated in the Consolidated Statements of Operations, the Statements of Comprehensive Income, the Consolidated Balance Sheets and commercial vehicle unit sales data as of May 2, 2022. Our business strategy consists of providing solutions to the commercial vehicle industry through our network of commercial vehicle dealerships. We offer an integrated approach to meeting customer needs by providing service, parts and collision repairs in addition to new and used commercial vehicle sales and leasing, plus financial services, vehicle upfitting, CNG fuel systems 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. 1 Table of Contents Rush Truck Centers. Our Rush Truck Centers are located in Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Missouri, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Virginia and Ontario, Canada. The following chart reflects our franchises and parts, service and collision repair operations by location as of February 15, 2024: Rush Truck Center Location Commercial Vehicle Franchise(s) Truck Sales Parts and Service Collision Center Alabama Birmingham None Yes Yes No Mobile Peterbilt Yes Yes Yes Arizona Flagstaff Peterbilt No Yes No Phoenix Peterbilt, Hino Yes Yes Yes Phoenix East Peterbilt No Yes No Tucson Peterbilt, Hino Yes Yes No Yuma Peterbilt Yes Yes No Arkansas Jonesboro International, IC Bus No Yes No Lowell International, Isuzu, IC Bus, Dennis Eagle Yes Yes Yes North Little Rock International, IC Bus, Dennis Eagle Yes Yes Yes Russellville International, IC Bus, Dennis Eagle Yes Yes No California Ceres Ford Yes Yes No Fontana Heavy-Duty Peterbilt Yes Yes Yes Fontana Medium-Duty Peterbilt, Hino, Isuzu Yes Yes No Fontana Vocational None No Yes No Long Beach Peterbilt No Yes No Los Angeles Peterbilt Yes Yes Yes San Diego Peterbilt, Hino, Ford Yes Yes No Sylmar Peterbilt Yes Yes No Ventura Peterbilt No Yes No Victorville Peterbilt Yes Yes No Whittier Ford, Isuzu Yes Yes No Colorado Colorado Springs Peterbilt Yes Yes No Denver Peterbilt, Ford, Isuzu Yes Yes Yes Greeley Peterbilt Yes Yes No Pueblo Peterbilt Yes Yes No Florida Haines City Peterbilt Yes Yes Yes Jacksonville Peterbilt, Hino Yes Yes No Jacksonville East Peterbilt Yes Yes No Lake City Peterbilt Yes Yes No Miami None Yes Yes No Orlando Heavy-Duty Peterbilt, Isuzu Yes Yes No Orlando Light & Medium-Duty Ford Yes Yes No Orlando North Isuzu Yes Yes No Orlando South Isuzu Yes Yes No Tampa Peterbilt Yes Yes No Georgia Atlanta International, Hino, Isuzu, IC Bus Yes Yes No Atlanta Bus Center IC Bus Yes Yes Yes Augusta International, IC Bus Yes Yes No Columbus International, Isuzu, IC Bus Yes Yes No Doraville International, Hino, Isuzu, IC Bus Yes Yes No Gainesville International, IC Bus Yes Yes No Macon International Yes Yes No Smyrna International, Hino, Isuzu, IC Bus Yes Yes No Tifton International, IC Bus Yes Yes No Valdosta International Yes Yes No 2 Table of Contents Rush Truck Center Location Commercial Vehicle Franchise(s) Truck Sales Parts and Service Collision Center Idaho Boise International, Hino, IC Bus Yes Yes Yes Idaho Falls International, IC Bus Yes Yes Yes Lewiston International Yes Yes No Twin Falls International Yes Yes No Illinois Bloomington International, Hino Yes Yes No Carol Stream International Yes Yes No Champaign International Yes Yes Yes Chicago International Yes Yes Yes Chicago Light and Medium Duty Ford Yes Yes No Effingham International Yes Yes Yes Elk Grove Hino, Isuzu Yes Yes No Huntley International Yes Yes No Joliet International Yes Yes No Pontoon Beach International, Dennis Eagle Yes Yes No Quincy International Yes Yes No Springfield International Yes Yes Yes Indiana Gary International Yes Yes No Indianapolis International Yes Yes Yes Kansas Olathe Hino, Isuzu, Dennis Eagle Yes Yes No Salina International, Dennis Eagle Yes Yes No Topeka International, Dennis Eagle Yes Yes No Wichita International, Dennis Eagle Yes Yes No Kentucky Bowling Green Peterbilt Yes Yes No Missouri Cape Girardeau International, Dennis Eagle Yes Yes No Jefferson City International, Dennis Eagle Yes Yes No Joplin International, Dennis Eagle Yes Yes No Kansas City International, Dennis Eagle Yes Yes Yes Kansas City Used Trucks None Yes No No St. Joseph International, Dennis Eagle Yes Yes No St. Peters International, Dennis Eagle Yes Yes No Springfield International, Isuzu, Dennis Eagle Yes Yes No Nevada Las Vegas Peterbilt Yes Yes No New Mexico Albuquerque Peterbilt Yes Yes Yes Farmington Peterbilt No Yes No Las Cruces Peterbilt Yes Yes No North Carolina Asheville International Yes Yes No Charlotte International, Hino, Isuzu Yes Yes Yes Hickory International Yes Yes No Ohio Akron International, IC Bus Yes Yes No Cincinnati International, IC Bus, Isuzu, Ford Yes Yes Yes Cleveland International, IC Bus Yes Yes No Columbus International, IC Bus, Isuzu(1) Yes Yes No Dayton International, IC Bus, Isuzu Yes Yes No Lima International, IC Bus Yes Yes No (1) Our Isuzu franchise is operated out of our Rush Truck Leasing - Columbus location. 3 Table of Contents Rush Truck Center Location Commercial Vehicle Franchise(s) Truck Sales Parts and Service Collision Center Oklahoma Ardmore Peterbilt Yes Yes No Oklahoma City Peterbilt, Hino, Ford, Isuzu Yes Yes Yes Tulsa Peterbilt, Hino Yes Yes Yes Pennsylvania Greencastle None Yes Yes No Tennessee Memphis International, Isuzu, Dennis Eagle Yes Yes Yes Memphis Used Trucks None Yes Yes No Nashville Peterbilt Yes Yes Yes Texas Abilene Peterbilt Yes Yes No Amarillo Peterbilt Yes Yes No Arlington Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes No Austin Peterbilt, Hino, Isuzu, Blue Bird, Micro Bird, Elkhart Yes Yes No Austin North Peterbilt No Yes No Beaumont Peterbilt Yes Yes No Brownsville Peterbilt, Elkhart Yes Yes No College Station Peterbilt Yes Yes No Corpus Christi Peterbilt, Hino, Isuzu, Blue Bird, Elkhart Yes Yes No Cotulla Peterbilt No Yes No Dalhart Peterbilt No Yes No Dallas Heavy-Duty Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes Yes Dallas Medium-Duty Peterbilt, Hino, Blue Bird, Micro Bird, Elkhart Yes Yes No Dallas Light & Medium-Duty Ford, Isuzu Yes Yes No Dallas South Peterbilt No Yes No Dallas TRP None No Yes No El Paso Peterbilt, Hino, Isuzu Yes Yes Yes Fort Worth Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes No Houston Peterbilt, Hino, Blue Bird, Micro Bird, Elkhart Yes Yes Yes Houston Medium-Duty Peterbilt, Hino Yes Yes No Laredo Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes Yes Lubbock Peterbilt Yes Yes No Lufkin Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes Yes Odessa Peterbilt Yes Yes No Pharr Peterbilt, Hino, Blue Bird, Micro Bird, Elkhart Yes Yes Yes San Antonio Peterbilt, Hino, Blue Bird, Micro Bird, Elkhart Yes Yes Yes Sealy Peterbilt, Isuzu, Blue Bird, Micro Bird, Elkhart Yes Yes No Texarkana Peterbilt, Hino, Isuzu, Blue Bird, Micro Bird, Elkhart Yes Yes No Tyler Peterbilt, Blue Bird, Micro Bird, Elkhart Yes Yes No Victoria Peterbilt Yes Yes No Waco Peterbilt, Hino, Isuzu, Blue Bird, Micro Bird, Elkhart Yes Yes No Wichita Falls Peterbilt, Blue Bird, Micro Bird Yes Yes No 4 Table of Contents Rush Truck Center Location Commercial Vehicle Franchise(s) Truck Sales Parts and Service Collision Center Utah Ogden International, IC Bus Yes Yes No Salt Lake City International, IC Bus Yes Yes Yes Springville International Yes Yes No St. George International Yes Yes No Virginia Chester International, Hino Yes Yes No Richmond International Yes Yes Yes Ontario, Canada Belleville International, IC Bus Yes Yes No Cornwall None No Yes No Kemptville International, IC Bus Yes Yes Yes Kingston International, IC Bus Yes Yes No Markham International, IC Bus Yes Yes No Mississauga International, IC Bus Yes Yes No Oshawa International, IC Bus Yes Yes No Ottawa East International, IC Bus Yes Yes No Ottawa West None No Yes No Pembroke International, IC Bus Yes Yes No Sault Saint Marie International, IC Bus Yes Yes No St. Catharines International, IC Bus Yes Yes No Sudbury International, IC Bus Yes Yes No Timmins International, IC Bus Yes Yes No Leasing and Rental Services. Through certain of our Rush Truck Centers and several stand-alone Rush Truck Leasing locations, we provide a broad line of product selections for lease or rent, including Class 4 through Class 8 commercial vehicles, heavy-duty cranes and refuse vehicles. Our lease and rental fleets are offered to customers on a daily, monthly or long-term basis. Substantially all of our long-term leases also contain a service provision, whereby we agree to service the vehicle through the life of the lease. The following chart reflects our leasing brands by location: Rush Truck Leasing Location Brand Standalone or in a Rush Truck Center Alabama Birmingham PacLease In RTC Arizona Phoenix PacLease Standalone Arkansas North Little Rock Idealease In RTC Lowell Idealease Standalone California Fontana PacLease Standalone Pico Rivera PacLease Standalone San Diego PacLease Standalone Sylmar PacLease In RTC Colorado Denver PacLease Standalone Florida Orlando PacLease Standalone Tampa PacLease In RTC Jacksonville PacLease Standalone Georgia Augusta Idealease In RTC Macon Idealease In RTC Idaho Boise Idealease In RTC 5 Table of Contents Rush Truck Leasing Location Brand Standalone or in a Rush Truck Center Illinois Carol Stream Idealease In RTC Chicago Idealease In RTC Effingham Idealease In RTC Huntley Idealease In RTC Joliet Idealease In RTC Springfield Idealease In RTC Indiana Indianapolis Idealease In RTC Gary Idealease In RTC Kansas Kansas City Idealease Standalone Salina Idealease In RTC Wichita Idealease In RTC Missouri Joplin Idealease In RTC St. Peters Idealease Standalone Springfield Idealease In RTC New Mexico Albuquerque PacLease Standalone Nevada Las Vegas PacLease Standalone North Carolina Asheville Idealease Standalone Charlotte Idealease Standalone Ohio Cincinnati Idealease Standalone Cleveland Idealease Standalone Columbus Idealease Standalone Dayton Idealease In RTC Oklahoma Oklahoma City PacLease In RTC Tennessee Memphis Idealease Standalone Nashville PacLease In RTC Texas Austin PacLease Standalone El Paso PacLease In RTC Arlington PacLease In RTC Houston PacLease Standalone Houston NW PacLease Standalone Odessa PacLease Standalone San Antonio PacLease In RTC Tyler PacLease Standalone Virginia Richmond Idealease Standalone Norfolk Idealease Standalone Utah Salt Lake City Idealease Standalone Ontario, Canada Markham Idealease In RTC Mississauga Idealease In RTC Ottawa Idealease In RTC St. Catharines Idealease In RTC Sudbury Idealease In RTC In addition to the locations in the above table, Rush Truck Leasing also provides full-service maintenance on customers’ vehicles at several of our customers’ facilities. Financial and Insurance Products. At our Rush Truck Centers, we offer third‑party financing to assist customers in purchasing new and used commercial vehicles. Additionally, we sell, as agent through our insurance agency, a complete line of property and casualty insurance, including collision and liability insurance on commercial vehicles, cargo insurance and credit life insurance. 6 Table of Contents Other Businesses. Perfection Equipment offers installation of equipment, equipment repair, parts installation, and paint and body repair at our location in Oklahoma City. Perfection Equipment specializes in up-fitting trucks used by oilfield service providers and other specialized service providers. Custom Vehicle Solutions operates at locations in Denton, Texas and Greencastle, Pennsylvania. Custom Vehicle Solutions provides new vehicle pre-delivery inspections, truck modifications, natural gas fuel system installations, body and chassis upfitting and component installation. The House of Trucks operates at locations in Dallas, Texas and Chicago, Illinois. The House of Trucks sells used commercial vehicles, new and used trailers and offers third-party financing and insurance products. Our World Wide Tires store operates in Houston, Texas. World Wide Tires primarily sells tires for use on commercial vehicles. Effective January 2022, we sold 50% of our equity interest in Momentum Fuel Technologies to a subsidiary of Cummins, Inc. and we are now operating the business, Cummins Clean Fuel Technologies, as a joint venture with Cummins. The joint venture manufactures compressed natural gas fuel systems and related component parts for commercial vehicles at its facility in Roanoke, Texas. Industry See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Industry” for a description of our industry and the markets in which we operate. Our Business Strategy Operating Strategy. Our strategy is to operate an integrated dealership network that provides service solutions to the commercial vehicle industry throughout the United States and Ontario, Canada. Our strategy includes the following key elements: ● Management by Dealership Units . At each of our dealerships, we operate one or more of the following departments: new commercial vehicle sales, used commercial vehicle sales, financial services, part sales, service, or a collision center. Our general managers measure and manage the operations of each dealership according to the specific departments operating at that location. We believe that this system enhances the profitability of all aspects of a dealership and increases our overall operating margins. Operating goals for each department at each of our dealerships are established annually and managers are rewarded for performance relative to these goals. ● One-Stop Centers . We have developed our larger commercial vehicle dealerships as “one-stop centers” that offer an integrated approach to meeting customer needs. We provide service, including collision repairs, parts, new and used commercial vehicles sales, leasing and rental, plus financial services including finance and insurance. We believe that this full-service strategy helps to mitigate cyclical economic fluctuations because our parts, service and collision center operations (referred to herein collectively as “Aftermarket Products and Services”) at our dealerships generally tend to be less volatile than our new and used commercial vehicle sales. ● Aftermarket Products and Services . Our aftermarket capabilities include a wide range of services and products, including a fleet of mobile service units, mobile technicians who work in our customers’ facilities, technology solutions, including vehicle telematics support, a proprietary line of parts and accessories, and factory-certified service for assembly services for specialized bodies and equipment. We believe that offering a variety of Aftermarket Products and Services at our dealerships and other locations allows us to meet the expanding needs of our customers. We continually strive to leverage our dealership network to offer more products and services to our customers. ● Branding Program . We employ a branding program at all of our dealerships through distinctive signage and uniform marketing programs to take advantage of our existing name recognition and to communicate the standardized high quality of our products and reliability of our services throughout our dealership network. 7 Table of Contents Growth Strategy. Through our strategic expansion and acquisition initiatives, we have grown to operate a large, multistate/international, full-service network of commercial vehicle dealerships. As described below, we intend to continue to grow our business by expanding our product and service offerings through acquisitions in new geographic areas and by opening new locations to enable us to better serve our customers. ● Expansion of Product and Service Offerings . We intend to continue to expand our product lines within our existing locations by adding product categories and service capabilities that are both complementary to our existing product lines and well suited to our operating model. We will continue to take advantage of technological advances that will provide us with the opportunity to offer vehicle owners more aftermarket options and the ability to maximize the performance of vehicles in their fleets using telematics and other technologies. ● Expansion Into New Geographic Areas . We plan to continue to expand our dealership network by acquiring existing dealerships or opening new locations in areas where we do not already have locations. We believe the geographic diversity of our Rush Truck Center network has significantly expanded our customer base while reducing the effects of local economic cycles. ● Open New Rush Truck Centers in Existing Areas of Operation . We continually evaluate opportunities to increase our market presence by adding new Rush Truck Centers within our current franchises’ areas of operation. Management of Our Dealerships Rush Truck Centers Our Rush Truck Centers are responsible for sales of new and used commercial vehicles, as well as related Aftermarket Products and Services. Aftermarket Products and Services . Revenues from Aftermarket Products and Services accounted for approximately $2,562.0 million, or 32.3%, of our total revenues for 2023, and 59.5% of our gross profit. Rush Truck Centers carry a wide variety of commercial vehicle parts in inventory. Certain Rush Truck Centers also feature fully equipped service and collision center facilities, the combination and configuration of which varies by location, capable of handling a broad range of repairs on most commercial vehicles. Each Rush Truck Center with a service department is a warranty service center for the commercial vehicle manufacturers represented at that location, if any, and most are also authorized service centers for other vehicle component manufacturers, including Cummins, Eaton, Caterpillar and Allison. We also have mobile service technicians and technicians who staff our customers’ facilities upon request. Our service departments perform warranty and non-warranty repairs on commercial vehicles. The cost of warranty work is generally reimbursed by the applicable manufacturer at retail commercial rates. Warranty-related parts and service revenues accounted for approximately $168.1 million, or 2.1%, of our total revenues for 2023. Additionally, we provide a wide array of services, including assembly services for specialized commercial vehicle bodies and commercial vehicle mounted equipment. Our goal is to provide our customers with any service that they need related to their commercial vehicles. We also enter into contracts to provide full-service maintenance on certain customers’ vehicles. We had 3,246 vehicles under contract maintenance as of December 31, 2023. The full-service maintenance revenues and retail service revenues are included as Aftermarket Products and Services revenues on our Consolidated Statements of Income. New Commercial Vehicle Sales . New commercial vehicle sales represent the largest portion of our revenues, accounting for approximately $4,543.3 million, or 57.3%, of our total revenues in 2023. Of this total, new Class 8 heavy-duty truck sales accounted for approximately $3,083.1 million, or 38.9%, of our total revenues for 2023, and 67.9% of our new commercial vehicle revenues for 2023. 8 Table of Contents Our Rush Truck Centers that sell new and used Class 8 heavy-duty trucks manufactured by Peterbilt, International or Dennis Eagle may also sell medium-duty and light-duty commercial vehicles. Certain Rush Truck Centers sell medium-duty commercial vehicles manufactured by Peterbilt, Hino, Isuzu, Ford, International or Dennis Eagle, buses manufactured by Blue Bird, IC Bus or Elkhart and light-duty commercial vehicles manufactured by Ford (see Part I, Item 1, “General – Rush Truck Centers ” for information on which brands we sell at each Rush Truck Center). New medium-duty commercial vehicle sales, excluding new bus sales, accounted for approximately $1,119.7 million, or 14.1%, of our total revenues for 2023, and 24.6% of our new commercial vehicle revenues for 2023. New bus sales accounted for approximately $192.3 million, or 2.4%, of our total revenues for 2023, and 4.2% of our new commercial vehicle revenues for 2023. New light-duty commercial vehicle sales accounted for approximately $108.8 million, or 1.4%, of our total revenues for 2023, and 2.4% of our new commercial vehicle revenues for 2023. A significant portion of our new commercial vehicle sales are to customers with large fleets of commercial vehicles. Because of the size and geographic scope of our Rush Truck Center network, our strong relationships with our fleet customers and our ability to manage large quantities of used commercial vehicle trade-ins, we are able to successfully market and sell to fleet customers nationwide. We believe that we have a competitive advantage over many dealerships because we can absorb multi-unit trade-ins often associated with fleet sales and effectively disperse the used commercial vehicles for resale throughout our dealership network. We believe that the broad range of products and services we offer to purchasers of commercial vehicles at the time of purchase and post-purchase results in a high level of customer loyalty. Used Commercial Vehicle Sales . Used commercial vehicle sales accounted for approximately $414.7 million, or 5.2%, of our total revenues for 2023. We sell used commercial vehicles at most of our Rush Truck Centers and also at our non-franchised used commercial vehicle facilities. We believe that we are well positioned to market used commercial vehicles due to our ability to recondition them for resale utilizing the service and collision center departments of our Rush Truck Centers and our ability to move used commercial vehicles between our dealerships as customer demand warrants. The majority of our used commercial vehicle inventory consists of commercial vehicles taken as trade-ins from new commercial vehicle customers or retired from our lease and rental fleet, but we also supplement our used commercial vehicle inventory by purchasing used commercial vehicles from third parties for resale, as market conditions warrant. Vehicle Leasing and Rental . Vehicle leasing and rental revenues accounted for approximately $353.8 million, or 4.5%, of our total revenues for 2023. At our Rush Truck Leasing locations, we engage in full-service commercial vehicle leasing and rental through our PacLease and Idealease franchises. As of December 31, 2023, we had 10,463 commercial vehicles in our lease and rental fleet. Generally, we sell commercial vehicles that have been retired from our lease and rental fleet through our used commercial vehicles sales operations. Historically, we have realized gains on the sale of used lease and rental fleet inventory. New and Used Commercial Vehicle Financing and Insurance . The sale of financial and insurance products accounted for approximately $24.3 million, or 0.3%, of our total revenues for 2023. Finance and insurance revenues have minimal direct costs and therefore, contribute a disproportionate share to our operating profits. Many of our Rush Truck Centers have personnel responsible for arranging third-party financing for our product offerings. Generally, commercial vehicle finance contracts involve an installment contract, which is secured by the commercial vehicle financed and requires a down payment, with the remaining balance generally financed over a two-year to seven-year period. Most of these finance contracts are sold to third parties without recourse to us. We provide an allowance for repossession losses and early repayment penalties that we may incur under these finance contracts. We sell, as an agent, a complete line of property and casualty insurance to commercial vehicle owners. Our agency, which operates at locations around the United States outside of our Rush Truck Centers, is licensed to sell commercial vehicle liability, collision, workers’ compensation, cargo, and credit life insurance coverage offered by several leading insurance companies. Our renewal rate in 2023 was approximately 81%. We also have licensed insurance agents at several of our Rush Truck Centers. Human Capital Management On December 31, 2023, we employed 7,860 people in the U.S. and 649 people in Canada. Of these employees, less than 1.4% of our workforce was classified as part-time. We do not regularly use independent contractors in our business operations. We strive to provide our employees with the security of long-term employment, competitive compensation and benefits, a consistent work schedule and opportunities to improve their skills and advance within the Company. 9 Table of Contents Core Values. Our core values define our culture and reflect who we are and the way we interact with our customers, suppliers, co-workers and shareholders. Our core values are productivity, fairness, excellence and a positive attitude and are described below. ● Productivity means constantly striving toward efficiency and success in all interactions and activities while working with a common purpose and sense of urgency. ● Fairness characterizes our honesty, integrity, truthfulness, dependability and reliability in everything we do. ● Excellence means doing it better than everyone else does. Our excellence is reflected in our first-class facilities, quality products and services, motivated and talented employees, superior results for the customer and consistency throughout our organization. ● Positive attitude means approaching every day with excitement and passion for our work and dedication to our customers with positive intensity. Each of these core values is embodied in our code of conduct, which we call our Rush Driving Principles. Employees are required to complete training on the Rush Driving Principles and certify that they have read and understand such principles on an annual basis. We believe that our core values are the foundation of a strong and ethical culture that is a strength for us, and we intend to continue building upon that culture to improve performance across our business. Employee Recruitment. We strive to attract the best talent from a variety of sources to meet the current and future needs of our business. We have established relationships with multiple trade schools and universities across the country that we utilize as a source for entry-level talent. Additionally, we believe it is incumbent upon all our managers to continuously monitor their local markets for experienced individuals who might be successful additions to our organization. Compensation Programs and Employee Benefits. Our compensation programs are designed to provide a compensation package that will attract, retain, motivate and reward employees who must operate in a highly competitive, fast-paced environment. In general, our compensation programs consist of a base salary or hourly rate, commissions for employees in front-line customer facing roles, cash performance bonuses for certain employees, equity incentive awards for senior leaders, vacation leave, sick leave and other forms of paid time off. We are committed to fair pay. In 2020, the Company established a minimum hourly wage of $15.00 an hour. Our employees receive a base level of monthly or hourly compensation that we believe is commensurate with their expertise, skills, knowledge, experience and location. We provide our full-time employees with comprehensive benefit options that allow our employees and their families to live healthier and more secure lives. Some examples of the wide-ranging benefits we offer include: medical insurance, prescription drug benefits, dental insurance, vision insurance, hospital indemnity insurance, accident insurance, critical illness insurance, smoking cessation assistance, life insurance, disability insurance, health savings accounts and flexible spending accounts. We also provide our employees with an opportunity to participate in the ownership of the Company by offering an employee stock purchase plan that allows employees to contribute a portion of their base earnings every six months toward the semi-annual purchase of the Company’s Class A common stock. Employees participating in the stock purchase plan receive a 15% discount on the purchase price of the stock, with such discount based on lesser of the closing price of the Class A common stock on the first business day or the last business day of the semi-annual offering period. In addition, we provide our employees with an opportunity to save for retirement by participating in our 401k plan, which has a Company-matching component that is based on years of service. Talent Development. Our talent development programs supply our employees and leaders with tools and experiences to foster learning, employee engagement, leadership development, talent management, and employee development. Career development is fostered through education, learning opportunities, succession planning, performance management, and training. Programs are designed to facilitate the development and advancement of talent from within our organization to enable us to continuously fill our ranks with qualified employees for critical positions in the organization. 10 Table of Contents Our Rush Foundational Leader Program is focused on developing key management and leadership skills. The Rush Foundational Leader Program consists of a series of courses ranging from basic management skills, including promoting a culture of diversity and inclusion, to more advanced leadership concepts and skills that are designed for managers throughout our organization. As a continuation of our leadership development initiatives, we have implemented our High Impact Leadership series, which focuses on building more advanced leadership skills such as motivating employees through meaningful feedback and inclusive leadership and communication. We also have a New Graduate Program that identifies and recruits new talent from universities across the country and provides on-the-job training for them to fill various roles within our dealership network. In addition, we have established a program called Growing Resilient Outstanding Women (“GROW”), which enables women to continue their professional development through educational opportunities, mentoring and networking. To enhance and develop the technical skills of entry-level service and body shop technicians, we established a formal mentorship program lead by experienced service and body shop technicians who serve as mentors to newly hired, entry level service and body shop technicians. We believe that this program increases the technicians’ likelihood of career success. This formal mentorship program also helps us identify top performers and we believe it improves employee performance and retention for participants in the program. Employee Experience. We conduct an annual comprehensive employee engagement survey designed to measure organizational culture and engagement. The purpose of the survey is to monitor overall employee engagement with the goal of identifying actions that can be taken to continuously improve our employee engagement, which we believe leads to increased employee retention. Data collected in each annual employee engagement survey is maintained and used to track our progress against our internal goals. Additionally, we use onboarding and exit survey feedback to monitor and improve engagement and retention. We have formal “listening groups” that provide additional engagement channels for feedback from our dealerships to senior management throughout the year. One of these groups is the Field Leadership Advisory Group (FLAG). FLAG consists of field employees nominated and selected for their valuable experience. They provide regular feedback to executives to ensure that issues they are facing are handled in an efficient and consistent manner and with the customer in mind. Another aspect of the employee experience is our reward and recognition program, called STAR. Managers and employees may nominate a colleague for superior work, outstanding effort, and demonstration of our company’s core values. Management continually monitors employee turnover data, which is supplemented with additional data from exit surveys to assist in determining the reasons for voluntary employee terminations. In 2023, our overall turnover rate for U.S. and Canada was 25.1%, compared to 28.6% in 2022. The turnover rate of our technicians is also monitored closely by management, as the retention of skilled technicians is critical to the success of the Company. Demand for technicians across the country is very high, and turnover in this role is also traditionally high for commercial vehicle dealers. In 2023, our turnover rate for U.S. and Canada technicians was 33.6%, compared to 36.7% in 2022. Ethics and Compliance. We are committed to the highest standards of corporate conduct. We maintain an Ethics and Compliance Program that is designed to meet external requirements, as well as our core values and code of conduct embodied in the Rush Driving Principles. A central component of our Ethics and Compliance Program is the continuous training and education of our employees on general ethics and compliance training topics. We also regularly reinforce our commitment to ethics and integrity in communications with our employees. Health and Safety. Promoting a safe and healthy workplace is our highest priority and is embodied in our core values. We utilize a mixture of leading and lagging indicators to assess the health and safety performance of our operations. Lagging indicators include the OSHA Total Recordable Incident Rate ("TRIR") and the Lost Time (or Lost Workday) Incident Rate ("LTIR") based upon the number of incidents per 100 employees (or per 200,000 work hours). Leading indicators include training completion rates, tracking of local safety committee meeting minutes, and recording of near misses, as well as other proactive actions taken to ensure employee safety. In 2023, we had a TRIR of 3.68, compared to 4.03 in 2022 and a LTIR of .57 in 2023, compared to 0.72 in 2022. Labor Relations. We have entered into collective bargaining agreements covering certain employees in Chicago, Illinois, which will expire on May 10, 2025, Joliet, Illinois, which will expire on May 3, 2026 and Carol Stream, Illinois, which will expire on May 2, 2027. We have the ratified terms of an agreement covering certain employees in Chicago LMD, which once formalized, will expire on May 6, 2028. There have been no strikes, work stoppages or slowdowns during the negotiations of the foregoing collective bargaining agreements or at any time in the Company’s history, although no assurances can be given that such actions will not occur. We believe that our relations with the labor unions that represent these employees are generally good. 11 Table of Contents Sales and Marketing Our established history of operations in the commercial vehicle business has resulted in a strong customer base that is diverse in terms of geography, industry and scale of operations. Our customers include national and regional truck fleets, corporations, local and state governments and owner-operators. During 2023, no single customer accounted for more than 10% of our sales by dollar volume. We generally promote our products and related services through direct customer contact by our sales personnel and advertising. Facility Management Personnel. Each of our facilities is typically managed by a general manager who oversees the operations, personnel and the financial performance of the location, subject to the direction of a regional manager and personnel at our corporate headquarters. Additionally, each full-service Rush Truck Center is typically staffed by department managers, sales representatives and other employees, as appropriate, given the services offered. The sales staff of each Rush Truck Center is compensated on a salary plus commission, or a commission only basis, while department managers receive a combination of salary and performance bonus. We believe that our employees are among the highest paid in the industry, which enables us to attract and retain qualified personnel. Compliance with Policies and Procedures. Each Rush Truck Center is audited regularly for compliance with corporate policies and procedures. These internal audits objectively measure dealership performance with respect to corporate expectations in the management and administration of sales, commercial vehicle inventory, parts inventory, parts sales, service sales, collision center sales, corporate policy compliance and environmental and safety compliance matters. Purchasing and Suppliers. Because of our size and the corresponding cost savings we provide, we benefit from volume purchases at favorable prices that permit us to achieve a competitive pricing position in the industry. We purchase our commercial vehicle inventory and proprietary parts and accessories directly from the applicable vehicle manufacturer, wholesale distributors, or other sources that provide the most favorable pricing. Most purchasing commitments are negotiated by personnel at our corporate headquarters. Historically, we have been able to negotiate favorable pricing levels and terms, which enable us to offer competitive prices for our products. Commercial Vehicle Inventory Management. We utilize our management information systems to monitor the inventory level of commercial vehicles at each of our dealerships and transfer new and used commercial vehicle inventory among Rush Truck Centers as needed. Parts Distribution and Inventory Management. We utilize a parts inventory distribution and management system that allows for the prompt transfer of parts inventory among various Rush Truck Centers. The transfer of inventory reduces delays in delivery, helps maximize inventory turns and assists in reducing overstock and understock. Our network is linked to our major suppliers for purposes of ordering parts and managing parts inventory levels. Automated reordering and communication systems allow us to maintain proper parts inventory levels and permit us to have parts inventory delivered to our locations, or directly to customers, typically within 24 hours of an order being placed. Recent Acquisitions On December 4, 2023, we acquired certain assets of Freeway Ford Truck Sales, Inc., which included real estate and a Ford commercial vehicle franchise in Chicago, Illinois, along with commercial vehicle and parts inventory. The transaction was valued at approximately $16.3 million, with the purchase price paid in cash. On February 25, 2019, we acquired 50% of the equity interest in RTC Canada, which acquired the operating assets of Tallman Group, the largest International Truck dealer in Canada. On May 2, 2022, we acquired an additional 30% equity interest for approximately $20.0 million. Prior to acquiring our additional equity interest, we accounted for the equity interest in RTC Canada using the equity method of accounting. Subsequent to the Company’s acquisition of the additional 30% equity interest on May 2, 2022, 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. 12 Table of Contents See Note 15 – Acquisitions in the Notes to the Financial Statements for further discussion. Competition There is, and will continue to be, significant competition both within our current markets and in new markets we may enter. We anticipate that competition between us and other dealership groups will continue to increase in our current markets and on a national level based on the following: ● the ability to keep customers’ vehicles operational, which is dependent on the accessibility of dealership locations and the ability to attract and retain service technicians; ● the number of dealership locations representing the manufacturers that we represent and other manufacturers, which impacts manufacturers’ ability to provide more consistent, higher quality service in a timely manner across their dealership networks; ● price, value, quality and design of the products sold; and ● our attention to customer service (including technical service). Our dealerships compete with dealerships representing other manufacturers, including commercial vehicles manufactured by Mack, Freightliner, Kenworth and Volvo. We believe that our dealerships are able to compete with other franchised dealerships, independent service centers, parts wholesalers, commercial vehicle wholesalers, rental service companies and industrial auctioneers in distributing our products and providing service because of the following: the overall quality and reputation of the products we sell; the “Rush” brand name recognition and reputation for quality service; the geographic scope of our dealership network; the breadth of commercial vehicles offered in our dealership network; and our ability to provide comprehensive Aftermarket Products and Services, as well as financing, insurance and other customer services. Dealership Agreements Peterbilt. We have entered into nonexclusive dealership agreements with Peterbilt that authorize us to act as a dealer of Peterbilt heavy- and medium-duty trucks. Our Peterbilt areas of responsibility currently encompass areas in the states of Alabama, Arizona, California, Colorado, Florida, Kentucky, Nevada, New Mexico, Oklahoma, Tennessee and Texas. These dealership agreements currently have terms expiring in July 2024. Our dealership agreements with Peterbilt may be terminated by Peterbilt in the event that the aggregate voting power of W.M. “Rusty” Rush, and certain current and former executives of the Company decreases below 22%. Sales of new Peterbilt commercial vehicles accounted for approximately 29.1% of our total revenues for 2023. International. We have entered into nonexclusive dealership agreements with Navistar that authorize us to act as a dealer of International heavy- and medium-duty trucks and, in certain markets, IC buses. Our Navistar areas of responsibility currently encompass areas in the states of Arkansas, Georgia, Idaho, Illinois, Indiana, Kansas, Missouri, North Carolina, Ohio, Tennessee, Utah and Virginia. These dealership agreements currently have terms expiring between May 2025 and January 2029. Sales of new International commercial vehicles accounted for approximately 16.4% of our total revenues for 2023. Other Commercial Vehicle Suppliers. In addition to our dealership agreements with Peterbilt and Navistar, various Rush Truck Centers have entered into dealership agreements with other commercial vehicle manufacturers, including Blue Bird, and Micro Bird, which currently have terms expiring between March 2024 and May 2029 and Ford, Hino, Isuzu and Dennis Eagle which have perpetual terms. Sales of new non‑Peterbilt and non-International commercial vehicles accounted for approximately 8.5% of our total revenues for 2023. Our dealership agreements impose certain operational obligations and financial requirements upon us and the relevant dealerships. In addition, each of our dealership agreements requires the consent of the relevant manufacturer for the sale or transfer of a franchise. 13 Table of Contents Any termination or nonrenewal of our dealership agreements must follow certain guidelines established by both state and federal legislation designed to protect motor vehicle dealers from arbitrary termination or nonrenewal of franchise agreements. The federal Automobile Dealers Day in Court Act and certain other similar state laws generally provide that the termination or nonrenewal of a motor vehicle dealership agreement must be done in “good faith” and upon a showing of “good cause” by the manufacturer for such termination or nonrenewal, as such terms have been defined by statute and interpreted in case law. Floor Plan Financing 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. Navistar Financial Corporation and Peterbilt offer trade terms that provide an interest-free inventory stocking period for certain new commercial vehicles. This interest-free period is generally 15 to 60 days. If the commercial vehicle is not sold within the interest-free period, we finance the commercial vehicle under the Floor Plan Credit Agreement. On September 14, 2021, we entered into our floor plan credit agreement with BMO Harris Bank N.A. (“BMO Harris”) (the “Floor Plan Credit Agreement”) and the lenders signatory thereto. The Floor Plan Credit Agreement includes an aggregate loan commitment of $1.0 billion. Prior to June 1, 2023, borrowings under the Floor Plan Credit Agreement bore 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 were payable monthly. On May 31, 2023, we entered into the First Amendment to the Floor Plan Credit Agreement that changed the benchmark interest rate to Term secured overnight financing rate (“SOFR”), as defined in the amendment. Effective June 1, 2023, borrowings under the Floor Plan Credit Agreement bear interest per annum, payable monthly, at (A) the greater of (i) zero and (ii) Term SOFR, plus (B) 1.20%. Borrowings under the Floor Plan Credit Agreement for the purchase of used inventory are limited to $150.0 million and loans for working capital purposes are limited to $200.0 million. The Floor Plan Credit Agreement expires September 14, 2026, although BMO Harris has the right to terminate at any time upon 360 days written notice and we may terminate at any time, subject to specified limited exceptions. On December 31, 2023, we had approximately $984.4 million outstanding under the Floor Plan Credit Agreement. The average daily outstanding borrowings under the Floor Plan Credit Agreement were $870.1 million during the year ended December 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 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. Loans to purchase used vehicle inventory are limited to twenty percent (20%) of the credit limit available at such time. RTC Canada may borrow, repay and reborrow loans from time to time until the maturity date, provided, however, that the outstanding principal amount on any date shall not exceed the credit limits set forth above with respect to new and used vehicles. Prior to June 1, 2023, advances under the RTC Canada Floor Plan Agreement bore interest per annum, payable on the first business day of each calendar month, at the Canadian Offered Dollar Rate (“CDOR”), plus 0.90% and in the case of an advance required to be made in USD dollars, at LIBOR, plus 1.10%. On June 1, 2023, RTC Canada entered into the First Amendment to the RTC Canada Floor Plan Agreement that changed the interest rate in the case of an advance required to be made in USD dollars to Term SOFR, as defined in the first amendment. Effective June 1, 2023, advances required to be made in USD dollars under the RTC Canada Floor Plan Agreement bear interest per annum, payable monthly, at Term SOFR, plus 1.20%. The RTC Canada Floor Plan Agreement expires September 14, 2026. On December 31, 2023, we had approximately $55.9 million CAD outstanding under the RTC Canada Floor Plan Agreement. 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. Lease and Rental Fleet Financing On September 14, 2021, we entered into a credit agreement (“WF Credit Agreement”) with the lenders signatory thereto (the “WF Lenders”) and Wells Fargo Bank, National Association (“WF”), as Administrative Agent (in such capacity, the “WF Agent”). Pursuant to the terms of the WF Credit Agreement (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 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, 2026, although, upon the occurrence and during the continuance of an event of default, the WF Agent has the right to, or upon the request of the required lenders must, terminate the commitments and declare all outstanding principal and interest due and payable. We may terminate the commitments at any time. On December 31, 2023, we had approximately $100.2 million outstanding under the WF Credit Agreement. 14 Table of Contents On November 1, 2023, the Company 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. We may borrow, repay and reborrow amounts pursuant to the PLC Agreement from time to time until the maturity date, provided, however, that the outstanding principal amount on any date shall not exceed the borrowing base. In addition, we must maintain a minimum balance of $190.0 million. Advances under the PLC Agreement bear interest per annum, payable on the fifth day of the following month, at our option, at either (A) the prime rate, minus 1.95%, provided that the floating rate of interest is subject to a floor of 0%, or (B) a fixed rate, to be determined between us and PLC in each instance of borrowing at a fixed rate. The PLC Agreement expires on December 1, 2025, although either party has the right to terminate the PLC Agreement at any time upon 180 days written notice. On December 31, 2023, we had approximately $265.0 million outstanding under the PLC Agreement. 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 CDOR, plus 1.35%. The RTC Canada Revolving Credit Agreement expires September 14, 2026. On December 31, 2023, we had approximately $64.7 million CAD outstanding under the RTC Canada Revolving Credit Agreement. Product Warranties The manufacturers we represent provide retail purchasers of their products with a limited warranty against defects in materials and workmanship, excluding certain specified components that are separately warranted by the suppliers of such components. We provide a warranty on our proprietary line of parts and related service and the fuel systems manufactured by our joint venture entity, Cummins Clean Fuel Technologies, and that were previously manufactured by Momentum Fuel Technologies. We also provide an extended warranty beyond the manufacturer’s warranty on new Blue Bird school buses that we sell in Texas, as required by state law. We generally sell used commercial vehicles in “as is” condition without a manufacturer’s warranty, although manufacturers sometimes will provide a limited warranty on their used products if such products have been properly reconditioned prior to resale or if the manufacturer’s warranty on such product is transferable and has not expired. Although we do not provide any warranty on used commercial vehicles, we offer for sale third-party warranties. Trademarks The trademarks and trade names of the manufacturers we represent, which are used in connection with our marketing and sales efforts, are subject to limited licenses included in our dealership agreements with each manufacturer. The licenses are for the same periods as our dealership agreements. These trademarks and trade names are widely recognized and are important in the marketing of our products. Each licensor engages in a continuous program of trademark and trade name protection. We hold registered trademarks from the U.S. Patent and Trademark Office for the following names used in this document: “Rush Enterprises” and “Rush Truck Center.” 15 Table of Contents Seasonality 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, Aftermarket Products and Services operations historically have experienced higher sales volumes in the second and third quarters. Backlog On December 31, 2023, our backlog of commercial vehicle orders was approximately $3,733.4 million, compared to a backlog of commercial vehicle orders of approximately $4,216.0 million on December 31, 2022. Our backlog is determined quarterly by multiplying the number of new commercial vehicles for each commercial vehicle ordered by a customer at our Rush Truck Centers by the recent average selling price for that type of commercial vehicle. We include only confirmed orders in our backlog. However, such orders are subject to cancellation. In the event of order cancellations, we have no contractual right to the total revenues reflected in our backlog. The delivery time for a custom-ordered commercial vehicle varies depending on the truck specifications, the demand for the particular model ordered and the status of the supply chain with respect to truck bodies and component parts. 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 December 31, 2023, and we expect to fill the majority of our backlog orders during 2024, assuming that the manufacturers we represent can meet their current production schedule. Given the potential for industry headwinds in the coming months caused by lower spot rates and high 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. In addition, given the current regulatory uncertainty in connection with the California Air Resources Board’s (“CARB”) enforcement of its rules and regulations, we believe that certain commercial vehicle orders currently reflected in our backlog could be canceled with respect to customers that intend to operate such vehicles in California. Environmental Standards and Other Governmental Regulations We are subject to federal, state and local environmental laws and regulations governing the following: discharges into the air and water; the operation and removal of underground and aboveground storage tanks; the use, handling, storage and disposal of hazardous substances, petroleum and other materials; and the investigation and remediation of environmental impacts. As with commercial vehicle dealerships generally, and vehicle service, parts and collision center operations in particular, our business involves the generation, use, storage, handling and contracting for recycling or disposal of hazardous materials or wastes and other environmentally sensitive materials. We have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with such laws and regulations. Our operations involving the use, handling, storage and disposal of hazardous and nonhazardous materials are subject to the requirements of the federal Resource Conservation and Recovery Act, or RCRA, and comparable state statutes. Pursuant to these laws, federal and state environmental agencies have established approved methods for handling, storage, treatment, transportation and disposal of regulated substances with which we must comply. Our business also involves the operation and use of aboveground and underground storage tanks. These storage tanks are subject to periodic testing, containment, upgrading and removal under RCRA and comparable state statutes. Furthermore, investigation or remediation may be necessary in the event of leaks or other discharges from current or former underground or aboveground storage tanks. We may also have liability in connection with materials that were sent to third‑party recycling, treatment, or disposal facilities under the federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and comparable state statutes. These statutes impose liability for investigation and remediation of environmental impacts without regard to fault or the legality of the conduct that contributed to the impacts. Responsible parties under these statutes may include the owner or operator of the site where impacts occurred and companies that disposed, or arranged for the disposal, of the hazardous substances released at these sites. These responsible parties also may be liable for damages to natural resources. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other materials into the environment. 16 Table of Contents The federal Clean Water Act and comparable state statutes require containment of potential discharges of oil or hazardous substances and require preparation of spill contingency plans. Water quality protection programs govern certain discharges from some of our operations. Similarly, the federal Clean Air Act and comparable state statutes regulate emissions of various air emissions through permitting programs and the imposition of standards and other requirements. The Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”), on behalf of the U.S. Department of Transportation, issued rules associated with reducing greenhouse gas (“GHG”) emissions and improving the fuel efficiency of medium and heavy-duty trucks and buses for current model years through 2027. In addition, in August 2021, the President of the United States issued an executive order intended to increase fuel efficiency, further reduce GHG emissions and speed up the development of “zero-emission” vehicles. The executive order calls for the EPA and the Secretary of Transportation to adopt new rules and regulations for commercial vehicles starting as early as model year 2027. Similarly, in June 2020, CARB adopted a final rule that is intended to phase out the sale of internal combustion engine commercial vehicles over time by requiring a certain percentage of each manufacturer’s commercial vehicles sold within the state to be “zero-emission vehicles,” or “near-zero emission vehicles,” starting in model year 2024. In July 2023, CARB and various manufacturers of heavy-duty commercial vehicles and engines, including PACCAR, Navistar, Ford, Hino, Isuzu and Cummins, entered into the Clean Truck Partnership, whereby the manufacturers agreed to comply with CARB’s emission requirements where applicable, regardless of whether any entity challenges CARB’s rule-making authority, and CARB agreed to work with manufacturers to provide reasonable lead time to meet CARB’s requirements and before imposing new regulations. In addition, CARB agreed to align its nitrogen oxide emissions rules with the EPA’s, which go into effect starting in model year 2027, and modify certain of its 2024 nitrogen oxide emissions regulations, currently in effect, with respect to which manufacturers may provide certain offsets to meet CARB's emission targets in exchange for the ability to sell legacy engines. Since July 2020, a group of seventeen U.S. states and the District of Columbia have entered into a joint memorandum of understanding that adopts at least a portion of CARB’s emissions regulations and commits each of them to work together to advance and accelerate the market for electric Class 3 through 8 commercial vehicles. Six of the states are states where we operate new commercial vehicle dealerships: California, Colorado, Nevada, New Mexico, 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 vehicles by 2030. Attaining these goals would likely require the adoption of new laws and regulations and we cannot predict at this time whether such laws and regulations would have an adverse impact on our business. Additional regulations, or CARB’s enforcement of its existing regulations, could result in increased compliance costs, additional operating restrictions or changes in demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations. We do not believe that we currently have any material environmental liabilities or that compliance with environmental laws and regulations will have a material adverse effect on our results of operations, financial condition or cash flows. However, soil and groundwater impacts are known to exist at some of our dealerships. Further, environmental laws and regulations are complex and subject to change. In addition, in connection with acquisitions, it is possible that we will assume or become subject to new or unforeseen environmental costs or liabilities, some of which may be material. In connection with our dispositions, or prior dispositions made by companies we acquire, we may retain exposure for environmental costs and liabilities, some of which may be material. Compliance with current or amended, or new or more stringent, laws or regulations, stricter interpretations of existing laws or the future discovery of environmental conditions could require additional expenditures by us, which could materially adversely affect our results of operations, financial condition or cash flows. In addition, such laws could affect demand for the products that we sell. 17 Table of Contents