RUSHA filing — read by section

Item 8. Financial Statements and Supplementary Data

Item 8. Financial Statements and Supplementary Data 

 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 
 45 
 
 Consolidated Balance Sheets as of December 31, 2023 and 2022 
 47 
 
 Consolidated Statements of Income for the Years Ended December 31, 2023, 2022 and 2021 
 48 
 
 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022 and 2021 
 49 
 
 Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2023, 2022 and 2021 
 50 
 
 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021 
 51 
 
 Notes to Consolidated Financial Statements 
 52 
 
 44

 Table of Contents 

 Report of Independent Registered Public Accounting Firm 

 To the Shareholders and the Board of Directors of Rush Enterprises, Inc.

 Opinion on the Financial Statements 

 We have audited the accompanying consolidated balance sheets of Rush Enterprises, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

 We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2024 expressed an unqualified opinion thereon.

 Basis for Opinion 

 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 Critical Audit Matter 

 The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 45

 Table of Contents 

 Used Commercial Vehicle Inventory Reserves 

 Description of the 

 Matter 

 At December 31, 2023, the Company’s used commercial vehicle inventory balance is approximately $45 million, which is net of management’s estimate of used commercial vehicle inventory reserves in the amount of approximately $5 million. As described in Note 6 to the consolidated financial statements, management adjusts the value of its inventory to net realizable value to the extent it determines inventory cost cannot be recovered. Management estimates future demand and sales prices to calculate the used commercial vehicle inventory reserves and to make corresponding adjustments to the carrying value of these inventories to reflect the lower of cost or net realizable value.

 Auditing management’s estimate of the used commercial vehicle inventory reserves involved auditor subjective judgment because the estimate is sensitive to changes in management’s assumptions for forecasted product demand and future sales prices.

 How We 

 Addressed the 

 Matter in Our 

 Audit 

 We evaluated and tested the design and operating effectiveness of controls over the Company’s processes to estimate the used commercial vehicle inventory reserve, which included management’s review of the underlying significant assumptions.

 Our substantive audit procedures included, among others, evaluating the significant assumptions described above, and we tested the completeness and accuracy of underlying data used in the estimation calculations. We also compared the cost of on-hand used commercial vehicle inventories to customer demand forecasts and historical sales. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the used commercial vehicle inventory reserves that would result from changes in the assumptions.

 /s/ Ernst & Young LLP 

 We have served as the Company’s auditor since 2002.

 San Antonio, Texas 

 February 23, 2024

 46

 Table of Contents 

 RUSH ENTERPRISES, INC. AND SUBSIDIARIES 

 CONSOLIDATED BALANCE SHEETS 

 (In Thousands, Except Shares and Per Share Amounts)

 December 31, 

 December 31, 

 2023 

 2022 

 Assets 

 Current assets:

 Cash, cash equivalents and restricted cash

 $ 
 183,725 
 
 $ 
 201,044 
 
 Accounts receivable, net

 259,353 
 
 220,651 
 
 Inventories, net

 1,801,447 
 
 1,429,429 
 
 Prepaid expenses and other

 15,779 
 
 16,619 
 
 Total current assets

 2,260,304 
 
 1,867,743 
 
 Property and equipment, net

 1,488,086 
 
 1,368,594 
 
 Operating lease right-of-use assets, net

 120,162 
 
 102,685 
 
 Goodwill, net

 420,708 
 
 416,363 
 
 Other assets, net

 74,981 
 
 65,681 
 
 Total assets 

 $ 
 4,364,241 
 
 $ 
 3,821,066 
 
 Liabilities and shareholders ’ equity 

 Current liabilities:

 Floor plan notes payable

 $ 
 1,139,744 
 
 $ 
 933,203 
 
 Current maturities of finance lease obligations

 36,119 
 
 29,209 
 
 Current maturities of operating lease obligations

 17,438 
 
 15,003 
 
 Trade accounts payable

 162,134 
 
 171,717 
 
 Customer deposits

 145,326 
 
 116,240 
 
 Accrued expenses

 172,549 
 
 163,302 
 
 Total current liabilities

 1,673,310 
 
 1,428,674 
 
 Long-term debt

 414,002 
 
 275,433 
 
 Finance lease obligations, net of current maturities

 97,617 
 
 93,483 
 
 Operating lease obligations, net of current maturities

 104,514 
 
 89,029 
 
 Other long-term liabilities

 24,811 
 
 19,455 
 
 Deferred income taxes, net

 159,571 
 
 151,970 
 
 Shareholders’ equity:

 Preferred stock, par value $ .01 per share; 1,000,000 shares authorized; 0 shares outstanding in 2023 and 2022

 − 
 
 − 
 
 Common stock, par value $ .01 per share; 105,000,000 Class A shares and 35,000,000 Class B shares authorized; 61,461,281 Class A shares and 16,364,158 Class B shares outstanding in 2023; and 63,518,042 Class A shares and 18,124,627 Class B shares outstanding in 2022

 806 
 
 572 
 
 Additional paid-in capital

 542,046 
 
 500,642 
 
 Treasury stock, at cost: 1,092,142 Class A shares and 1,731,157 Class B shares in 2023; and 1,626,777 Class A shares and 1,112,446 Class B shares in 2022

 ( 119,835 
 ) 
 
 ( 130,930 
 ) 
 
 Retained earnings

 1,450,025 
 
 1,378,337 
 
 Accumulated other comprehensive (loss)

 ( 2,163 
 ) 
 
 ( 4,130 
 ) 
 
 Total Rush Enterprises, Inc. shareholders’ equity

 1,870,879 
 
 1,744,491 
 
 Noncontrolling interest

 19,537 
 
 18,531 
 
 Total shareholders’ equity

 1,890,416 
 
 1,763,022 
 
 Total liabilities and shareholders ’ equity 

 $ 
 4,364,241 
 
 $ 
 3,821,066 
 
 The accompanying notes are an integral part of these consolidated financial statements.

 47

 Table of Contents 

 RUSH ENTERPRISES, INC. AND SUBSIDIARIES 

 CONSOLIDATED STATEMENTS OF INCOME 

 (In Thousands, Except Per Share Amounts)

 Year Ended December 31, 

 2023 

 2022 

 2021 

 Revenues 

 New and used commercial vehicle sales

 $ 
 4,957,969 
 
 $ 
 4,351,370 
 
 $ 
 3,039,953 
 
 Aftermarket products and services sales

 2,562,141 
 
 2,372,439 
 
 1,793,363 
 
 Lease and rental sales

 353,780 
 
 322,257 
 
 247,234 
 
 Finance and insurance

 24,271 
 
 29,741 
 
 27,964 
 
 Other

 26,863 
 
 25,863 
 
 17,628 
 
 Total revenue

 7,925,024 
 
 7,101,670 
 
 5,126,142 
 
 Cost of products sold 

 New and used commercial vehicle sales

 4,474,616 
 
 3,937,091 
 
 2,736,502 
 
 Aftermarket products and services sales

 1,609,383 
 
 1,455,616 
 
 1,109,249 
 
 Lease and rental sales

 247,935 
 
 221,804 
 
 188,093 
 
 Total cost of products sold

 6,331,934 
 
 5,614,511 
 
 4,033,844 
 
 Gross profit 

 1,593,090 
 
 1,487,159 
 
 1,092,298 
 
 Selling, general and administrative

 1,021,722 
 
 927,836 
 
 731,340 
 
 Depreciation and amortization

 59,830 
 
 55,665 
 
 53,354 
 
 Gain on sale of assets

 843 
 
 2,455 
 
 1,432 
 
 Operating income 

 512,381 
 
 506,113 
 
 309,036 
 
 Other income

 2,597 
 
 22,338 
 
 6,417 
 
 Interest income (expense):

 Interest income

 777 
 
 639 
 
 657 
 
 Interest expense

 ( 53,694 
 ) 
 
 ( 19,763 
 ) 
 
 ( 2,427 
 ) 
 
 Total interest expense, net

 ( 52,917 
 ) 
 
 ( 19,124 
 ) 
 
 ( 1,770 
 ) 
 
 Income before taxes 

 462,061 
 
 509,327 
 
 313,683 
 
 Income tax provision

 114,000 
 
 117,242 
 
 72,268 
 
 Net income 

 348,061 
 
 392,085 
 
 241,415 
 
 Less: Net income attributable to noncontrolling interest

 1,006 
 
 703 
 
 - 
 
 Net income attributable to Rush Enterprises, Inc. 

 $ 
 347,055 
 
 $ 
 391,382 
 
 $ 
 241,415 
 
 Net income attributable to Rush Enterprises, Inc. per share of common stock: 

 Basic

 $ 
 4.28 
 
 $ 
 4.71 
 
 $ 
 2.88 
 
 Diluted

 $ 
 4.15 
 
 $ 
 4.57 
 
 $ 
 2.78 
 
 Dividends declared per common share 

 $ 
 0.62 
 
 $ 
 0.49 
 
 $ 
 0.27 
 
 The accompanying notes are an integral part of these consolidated financial statements.

 48

 Table of Contents 

 RUSH ENTERPRISES, INC. AND SUBSIDIARIES 

 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

 (In Thousands)

 2023 

 2022 

 2021 

 Net income 

 $ 
 348,061 
 
 $ 
 392,085 
 
 $ 
 241,415 
 
 Other comprehensive income (loss), net of tax:

 Foreign currency translation

 1,967 
 
 ( 4,316 
 ) 
 
 ( 82 
 ) 
 
 Reclassification of currency translation related to equity method accounting

 - 
 
 ( 601 
 ) 
 
 - 
 
 Other comprehensive income (loss) attributable to Rush Enterprises, Inc.

 1,967 
 
 ( 4,917 
 ) 
 
 ( 82 
 ) 
 
 Comprehensive income 

 $ 
 350,028 
 
 $ 
 387,168 
 
 $ 
 241,333 
 
 Less: Comprehensive income attributable to noncontrolling interest

 1,006 
 
 703 
 
 - 
 
 Comprehensive income attributable to Rush Enterprises, Inc. 

 $ 
 349,022 
 
 $ 
 386,465 
 
 $ 
 241,333 
 
 The accompanying notes are an integral part of these consolidated financial statements.

 49

 Table of Contents 

 RUSH ENTERPRISES, INC. AND SUBSIDIARIES 

 CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY 

 (In Thousands) 

 Common Stock

 Shares

 Outstanding

 $0.01

 Par

 Additional

 Paid -In

 Treasury

 Retained

 Accumulated

 Other

 Comprehensive

 Total

 Rush Enterprises,

 Inc.

 Shareholders’

 Noncontrolling

 Total

 Shareholders’

 Class A Class B

 Value

 Capital

 Stock

 Earnings

 Income (Loss)

 Equity 
 
 Interest 
 
 Equity 
 
 Balance, December 31, 2020 

 63,756 
 
 18,705 
 
 $ 
 551 
 
 $ 
 437,646 
 
 $ 
 ( 2,879 
 ) 
 
 $ 
 831,850 
 
 $ 
 869 
 
 $ 
 1,268,037 
 
 – 
 
 $ 
 1,268,037 
 
 Stock options exercised and stock awards

 1,176 
 
 – 
 
 8 
 
 14,157 
 
 – 
 
 – 
 
 – 
 
 14,165 
 
 – 
 
 14,165 
 
 Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

 – 
 
 – 
 
 – 
 
 22,246 
 
 – 
 
 – 
 
 – 
 
 22,246 
 
 – 
 
 22,246 
 
 Vesting of restricted share awards

 – 
 
 520 
 
 3 
 
 ( 7,447 
 ) 
 
 – 
 
 – 
 
 – 
 
 ( 7,444 
 ) 
 
 – 
 
 ( 7,444 
 ) 
 
 Issuance of common stock under employee stock purchase plan

 224 
 
 – 
 
 1 
 
 4,148 
 
 – 
 
 – 
 
 – 
 
 4,149 
 
 – 
 
 4,149 
 
 Common stock repurchases

 ( 494 
 ) 
 
 ( 627 
 ) 
 
 – 
 
 – 
 
 ( 34,054 
 ) 
 
 – 
 
 – 
 
 ( 34,054 
 ) 
 
 – 
 
 ( 34,054 
 ) 
 
 Cash dividends declared on Class A common stock

 ( 31,816 
 ) 
 
 – 
 
 ( 31,816 
 ) 
 
 – 
 
 ( 31,816 
 ) 
 
 Cash dividends declared on Class B common stock

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 ( 9,867 
 ) 
 
 – 
 
 ( 9,867 
 ) 
 
 – 
 
 ( 9,867 
 ) 
 
 Other comprehensive income

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 ( 82 
 ) 
 
 ( 82 
 ) 
 
 – 
 
 ( 82 
 ) 
 
 Net income

 241,415 
 
 – 
 
 241,415 
 
 – 
 
 241,415 
 
 Balance, December 31, 2021 

 64,662 
 
 18,598 
 
 $ 
 563 
 
 $ 
 470,750 
 
 $ 
 ( 36,933 
 ) 
 
 $ 
 1,031,582 
 
 $ 
 787 
 
 $ 
 1,466,749 
 
 – 
 
 $ 
 1,466,749 
 
 Stock options exercised and stock awards

 585 
 
 – 
 
 4 
 
 8,029 
 
 – 
 
 – 
 
 – 
 
 8,033 
 
 – 
 
 8,033 
 
 Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

 – 
 
 – 
 
 – 
 
 25,315 
 
 – 
 
 – 
 
 – 
 
 25,315 
 
 – 
 
 25,315 
 
 Vesting of restricted share awards

 – 
 
 457 
 
 3 
 
 ( 8,669 
 ) 
 
 – 
 
 – 
 
 – 
 
 ( 8,666 
 ) 
 
 – 
 
 ( 8,666 
 ) 
 
 Issuance of common stock under employee stock purchase plan

 201 
 
 – 
 
 2 
 
 5,217 
 
 – 
 
 – 
 
 – 
 
 5,219 
 
 – 
 
 5,219 
 
 Common stock repurchases

 ( 1,930 
 ) 
 
 ( 930 
 ) 
 
 – 
 
 – 
 
 ( 93,997 
 ) 
 
 – 
 
 – 
 
 ( 93,997 
 ) 
 
 – 
 
 ( 93,997 
 ) 
 
 Cash dividends declared on Class A common stock

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 ( 34,207 
 ) 
 
 – 
 
 ( 34,207 
 ) 
 
 – 
 
 ( 34,207 
 ) 
 
 Cash dividends declared on Class B common stock

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 ( 10,420 
 ) 
 
 – 
 
 ( 10,420 
 ) 
 
 – 
 
 ( 10,420 
 ) 
 
 Reclassification of foreign currency translation related to equity method

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 ( 601 
 ) 
 
 ( 601 
 ) 
 
 – 
 
 ( 601 
 ) 
 
 Foreign currency translation adjustment

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 ( 4,316 
 ) 
 
 ( 4,316 
 ) 
 
 – 
 
 ( 4,316 
 ) 
 
 Noncontrolling interest equity

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 17,828 
 
 17,828 
 
 Net income

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 391,382 
 
 – 
 
 391,382 
 
 703 
 
 392,085 
 
 Balance, December 31, 2022 

 63,518 
 
 18,125 
 
 $ 
 572 
 
 $ 
 500,642 
 
 $ 
 ( 130,930 
 ) 
 
 $ 
 1,378,337 
 
 $ 
 ( 4,130 
 ) 
 
 $ 
 1,744,491 
 
 $ 
 18,531 
 
 $ 
 1,763,022 
 
 Stock options exercised and stock awards

 822 
 
 – 
 
 6 
 
 12,120 
 
 – 
 
 – 
 
 – 
 
 12,126 
 
 – 
 
 12,126 
 
 Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

 – 
 
 – 
 
 – 
 
 30,354 
 
 – 
 
 – 
 
 – 
 
 30,354 
 
 – 
 
 30,354 
 
 Vesting of restricted share awards

 – 
 
 421 
 
 3 
 
 ( 7,018 
 ) 
 
 – 
 
 – 
 
 – 
 
 ( 7,015 
 ) 
 
 – 
 
 ( 7,015 
 ) 
 
 Issuance of common stock under employee stock purchase plan

 209 
 
 – 
 
 1 
 
 5,951 
 
 – 
 
 – 
 
 – 
 
 5,952 
 
 – 
 
 5,952 
 
 Common stock repurchases

 ( 3,088 
 ) 
 
 ( 2,182 
 ) 
 
 – 
 
 – 
 
 ( 213,425 
 ) 
 
 – 
 
 – 
 
 ( 213,425 
 ) 
 
 – 
 
 ( 213,425 
 ) 
 
 Retirement of treasury shares and par value adjustment

 – 
 
 – 
 
 224 
 
 ( 3 
 ) 
 
 224,520 
 
 ( 224,744 
 ) 
 
 ( 3 
 ) 
 
 ( 3 
 ) 
 
 Cash dividends declared on Class A common stock

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 ( 38,727 
 ) 
 
 – 
 
 ( 38,727 
 ) 
 
 – 
 
 ( 38,727 
 ) 
 
 Cash dividends declared on Class B common stock

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 ( 11,896 
 ) 
 
 – 
 
 ( 11,896 
 ) 
 
 – 
 
 ( 11,896 
 ) 
 
 Foreign currency translation adjustment

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 1,967 
 
 1,967 
 
 – 
 
 1,967 
 
 Net income

 – 
 
 – 
 
 – 
 
 – 
 
 – 
 
 347,055 
 
 – 
 
 347,055 
 
 1,006 
 
 348,061 
 
 Balance, December 31, 2023 

 61,461 
 
 16,364 
 
 $ 
 806 
 
 $ 
 542,046 
 
 $ 
 ( 119,835 
 ) 
 
 $ 
 1,450,025 
 
 $ 
 ( 2,163 
 ) 
 
 $ 
 1,870,879 
 
 $ 
 19,537 
 
 $ 
 1,890,416 
 
 The accompanying notes are an integral part of these consolidated financial statements.

 50

 Table of Contents 

 RUSH ENTERPRISES, INC. AND SUBSIDIARIES 

 CONSOLIDATED STATEMENTS OF CASH FLOWS 

 (In Thousands)

 Year Ended December 31, 

 2023 

 2022 

 2021 

 Cash flows from operating activities: 

 Net income

 $ 
 348,061 
 
 $ 
 392,085 
 
 $ 
 241,415 
 
 Adjustments to reconcile net income to net cash provided by operating activities

 Depreciation and amortization

 221,141 
 
 199,149 
 
 169,497 
 
 Gain on sale of property and equipment, net

 ( 843 
 ) 
 
 ( 2,467 
 ) 
 
 ( 1,432 
 ) 
 
 Gain on joint venture transaction

 - 
 
 ( 12,500 
 ) 
 
 - 
 
 Gain on business acquisition

 - 
 
 ( 6,958 
 ) 
 
 - 
 
 Stock-based compensation expense related to employee stock options and employee stock purchases

 30,354 
 
 25,315 
 
 22,246 
 
 Provision for deferred income tax expense

 7,601 
 
 4,261 
 
 14,034 
 
 Change in accounts receivable, net

 ( 38,307 
 ) 
 
 ( 74,607 
 ) 
 
 32,312 
 
 Change in inventories

 ( 297,678 
 ) 
 
 ( 324,508 
 ) 
 
 ( 33,572 
 ) 
 
 Change in prepaid expenses and other, net

 862 
 
 1,340 
 
 ( 252 
 ) 
 
 Change in trade accounts payable

 ( 10,629 
 ) 
 
 31,438 
 
 12,053 
 
 Change in customer deposits

 28,803 
 
 34,121 
 
 2,993 
 
 Change in accrued expenses

 7,198 
 
 32,789 
 
 ( 31,337 
 ) 
 
 Other, net

 ( 850 
 ) 
 
 ( 5,058 
 ) 
 
 ( 5,611 
 ) 
 
 Net cash provided by operating activities

 295,713 
 
 294,400 
 
 422,346 
 
 Cash flows from investing activities: 

 Acquisition of property and equipment

 ( 368,881 
 ) 
 
 ( 243,060 
 ) 
 
 ( 167,177 
 ) 
 
 Proceeds from the sale of property and equipment

 2,212 
 
 7,124 
 
 3,447 
 
 Business disposition

 - 
 
 27,500 
 
 - 
 
 Business acquisitions, net of cash

 ( 16,050 
 ) 
 
 ( 20,762 
 ) 
 
 ( 269,332 
 ) 
 
 Other

 ( 4,311 
 ) 
 
 ( 11,732 
 ) 
 
 157 
 
 Net cash used in investing activities

 ( 387,030 
 ) 
 
 ( 240,930 
 ) 
 
 ( 432,905 
 ) 
 
 Cash flows from financing activities: 

 Draws on floor plan notes payable – non-trade, net

 205,487 
 
 273,906 
 
 118,945 
 
 Proceeds from long-term debt

 1,429,083 
 
 958,328 
 
 260,336 
 
 Principal payments on long-term debt

 ( 1,291,615 
 ) 
 
 ( 1,084,465 
 ) 
 
 ( 455,064 
 ) 
 
 Principal payments on finance lease obligations

 ( 17,693 
 ) 
 
 ( 14,780 
 ) 
 
 ( 13,774 
 ) 
 
 Proceeds from issuance of shares relating to employee stock options and employee stock purchases

 18,077 
 
 13,255 
 
 18,313 
 
 Taxes paid related to net share settlement of equity awards

 ( 7,017 
 ) 
 
 ( 8,669 
 ) 
 
 ( 7,443 
 ) 
 
 Payments of cash dividends

 ( 50,582 
 ) 
 
 ( 44,556 
 ) 
 
 ( 41,060 
 ) 
 
 Common stock repurchased

 ( 211,778 
 ) 
 
 ( 93,709 
 ) 
 
 ( 33,596 
 ) 
 
 Net cash provided by (used in) financing activities

 73,962 
 
 ( 690 
 ) 
 
 ( 153,343 
 ) 
 
 Net (decrease) increase in cash, cash equivalents and restricted cash 

 ( 17,355 
 ) 
 
 52,780 
 
 ( 163,902 
 ) 
 
 Effect of exchange rate on cash

 36 
 
 118 
 
 - 
 
 Cash, cash equivalents and restricted cash, beginning of year

 201,044 
 
 148,146 
 
 312,048 
 
 Cash, cash equivalents and restricted cash, end of year 

 $ 
 183,725 
 
 $ 
 201,044 
 
 $ 
 148,146 
 
 Supplemental disclosure of cash flow information: 

 Cash paid during the year for:

 Interest

 $ 
 56,427 
 
 $ 
 21,694 
 
 $ 
 22,224 
 
 Income taxes paid, net

 $ 
 106,872 
 
 $ 
 102,038 
 
 $ 
 101,987 
 
 Noncash investing and financing activities:

 Assets acquired under finance leases

 $ 
 43,330 
 
 $ 
 33,654 
 
 $ 
 29,044 
 
 The accompanying notes are an integral part of these consolidated financial statements.

 51

 Table of Contents 

 RUSH ENTERPRISES, INC. AND SUBSIDIARIES 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

 1.

 ORGANIZATION AND OPERATIONS :

 Rush Enterprises, Inc. (the “Company”) was incorporated in 1965 under the laws of the State of Texas. The Company operates a network of commercial vehicle dealerships that primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, IC Bus, Blue Bird or Dennis Eagle. Through its strategically located network of Rush Truck Centers, the Company provides one-stop service for the needs of its commercial vehicle customers, including retail sales of new and used commercial vehicles, aftermarket parts sales, service and repair facilities, financing, leasing and rental, and insurance products.

 Restricted Cash 

 Restricted cash consists of deposits for the statutory restriction on cash related to the Company’s captive insurance company of $ 2.8 million as of December 31, 2023.

 Stock Split 

 On July 25, 2023, the Board of Directors of the Company declared a 3 -for- 2 stock split of the Company’s Class A common stock and Class B common stock, which was effected in the form of a stock dividend. On August 28, 2023, the Company distributed one additional share of stock for every two shares of Class A common stock, par value $ 0.01 per share, and Class B common stock, par value $ 0.01 per share, held by shareholders of record as of August 7, 2023. All share and per share data in this Form 10-K have been adjusted and restated to reflect the stock split as if it occurred on the first day of the earliest period presented.

 Authorized Shares 

 On May 16, 2023, the Company’s shareholders approved the Certificate of Amendment to the Restated Articles of Incorporation of the Company to increase the number of authorized shares of Class A Common Stock from 60,000,000 to 105,000,000 and Class B Common Stock from 20,000,000 to 35,000,000 .

 Treasury Stock Retirement 

 During the third quarter of 2023, the Company retired 3,052,899 shares of Class A common stock and 1,445,515 shares of Class B common stock. The Company recorded the retirement directly against retained earnings based on the Company’s policy election. The Company accounts for treasury stock using the cost method. There was no effect on the Company’s overall equity position due to the retirement of the treasury shares.

 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 Canadian dollar. Results of operations for RTC Canada are translated to USD using the average exchange rate on a monthly basis during each quarter. The assets and liabilities of RTC Canada are translated into USD using the exchange rate in effect on the balance sheet date. The related translation adjustments are recorded as a separate component of the Company’s Consolidated Statements of Shareholders’ Equity in accumulated other comprehensive income (loss).

 2.

 SIGNIFICANT ACCOUNTING POLICIES :

 Principles of Consolidation 

 The consolidated financial statements presented herein include the accounts of Rush Enterprises, Inc. together with its consolidated subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

 Estimates in Financial Statements 

 The preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Management analyzes the Company’s estimates based on historical experience and other assumptions that are believed to be reasonable under the circumstances, however, actual results could differ materially from such estimates.

 52

 Table of Contents 

 Cash, Cash Equivalents and Restricted Cash 

 Cash and cash equivalents generally consist of cash and other money market instruments. The Company considers all highly liquid investments with an original maturity of ninety days or less to be cash equivalents. Restricted cash consists of deposits for the statutory restriction on cash related to the Company’s captive insurance company.

 Allowance for Credit Losses and Repossession Losses 

 The Company maintains an allowance for credit losses based on the probability of default, its historical rate of losses, aging and current economic conditions. Accounts receivables consist primarily of commercial vehicle sales receivables, manufacturers’ receivables, leasing and parts and service receivables and other trade receivables. The Company writes off account balances when it has exhausted reasonable collection efforts and determined that the likelihood of collection is remote. These write-offs are charged against the allowance for credit losses.

 The Company provides an allowance for repossession losses after considering historical loss experience and other factors that might affect the ability of customers to meet their obligations on finance contracts sold by the Company when the Company has a potential liability.

 Inventories 

 Inventories are stated at the lower of cost or net realizable value. Cost is determined by specific identification of new and used commercial vehicle inventory and by the first-in, first-out method for tires, parts and accessories. As the market value of the Company’s inventory typically declines over time, reserves are established based on historical loss experience and market trends. These reserves are charged to cost of sales and reduce the carrying value of the Company’s inventory on hand. An allowance is provided when it is anticipated that cost will exceed net realizable value.

 Property and Equipment 

 Property and equipment are stated at cost and depreciated over their estimated useful lives. Leasehold improvements are amortized over the useful life of the improvement, or the term of the lease, whichever is shorter. Provision for depreciation of property and equipment is calculated primarily on a straight-line basis. The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest, when incurred, is added to the cost of the underlying assets and is amortized over the estimated useful life of such assets. In 2023, the Company capitalized $ 0.7 million in interest. The cost, accumulated depreciation and amortization and estimated useful lives of the Company’s property and equipment are summarized as follows (in thousands):

 2023

 2022

 Estimated Life

 (Years)

 Land

 $ 
 172,396 
 
 $ 
 162,641 
 
 Buildings and improvements

 591,992 
 
 570,595 
 
 10 
 – 
 39 
 
 Leasehold improvements

 43,088 
 
 42,236 
 
 2 
 – 
 39 
 
 Machinery and shop equipment

 105,544 
 
 96,584 
 
 5 
 – 
 20 
 
 Furniture, fixtures and computers

 111,242 
 
 98,609 
 
 3 
 – 
 15 
 
 Transportation equipment

 135,425 
 
 116,327 
 
 3 
 – 
 15 
 
 Lease and rental vehicles

 1,155,767 
 
 1,067,006 
 
 1 
 – 
 8 
 
 Construction in progress

 31,037 
 
 14,585 
 
 Accumulated depreciation and amortization

 ( 858,405 
 ) 
 
 ( 799,989 
 ) 
 
 Total

 $ 
 1,488,086 
 
 $ 
 1,368,594 
 
 The Company recorded depreciation expense of $ 194.1 million and amortization expense of $ 27.0 million for the year ended December 31, 2023, depreciation expense of $ 177.1 million and amortization expense of $ 22.1 million for the year ended December 31, 2022, and depreciation expense of $ 148.3 million and amortization expense of $ 21.2 million for the year ended December 31, 2021.

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 As of December 31, 2023, the Company had $ 125.7 million in lease and rental vehicles under various finance leases included in property and equipment, net of accumulated amortization of $ 58.9 million. The Company recorded depreciation and amortization expense of $ 161.3 million related to lease and rental vehicles in lease and rental cost of products sold for the year ended December 31, 2023, $ 143.5 million for the year ended December 31, 2022 and $ 116.1 million for the year ended December 31, 2021.

 Purchase Price Allocation, Intangible Assets and Goodwill 

 The Company uses the acquisition method of accounting for the recognition of assets acquired and liabilities assumed through acquisitions at their estimated fair values as of the date of acquisition. The purchase price allocation for business combinations and asset acquisitions requires the use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. As a result, during the measurement period, which is not to exceed one year from the date of acquisition, any changes in the estimated fair values of the net assets recorded for the acquisitions will result in an adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the Consolidated Statements of Income.

 The Company determines whether substantially all the fair value of the gross assets acquired are 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, the Company determines whether the single asset or group of assets, as applicable, meets the definition of a business.

 In connection with the Company’s business combinations, it records certain intangible assets, including franchise rights. The Company periodically reviews the estimated useful lives and fair values of its identifiable intangible assets, taking into consideration any events or circumstances that might result in a diminished fair value or revised useful life. See Note 15 – Acquisitions in the Notes to the Financial Statements for further discussion.

 Goodwill represents the excess, at the date of acquisition, of the purchase price of an acquired business over the fair value of the net tangible and intangible assets acquired. In addition to goodwill, the Company recognizes separately identifiable intangible assets for rights under franchise agreements with manufacturers.

 The fair value of the intangible franchise right is determined at the acquisition date by discounting the projected cash flows specific to each acquisition. The carrying value of the Company’s manufacturer franchise rights was $ 12.3 million as of December 31, 2023 and December 31, 2022, and is included in Other Assets on the accompanying Consolidated Balance Sheet. The Company has determined that manufacturer franchise rights have an indefinite life, as there are no economic or other factors that limit their useful lives and they are expected to generate cash flows indefinitely due to the historically long lives of the manufacturers’ brand names. Furthermore, to the extent that any agreements evidencing manufacturer franchise rights have expiration dates, the Company expects that it will be able to renew those agreements in the ordinary course of business. Accordingly, the Company does not amortize manufacturer franchise rights.

 Due to the fact that manufacturer franchise rights are specific to a geographic region, the Company has determined that evaluating and including all locations acquired in the geographic region is the appropriate level for purposes of testing franchise rights for impairment. The Company is subject to financial statement risk to the extent that manufacturer franchise rights become impaired due to decreases in the fair market value of its individual franchises.

 The Company assesses goodwill and intangible franchise rights 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. See Fair Value Measurements below for further discussion of Level 3 fair value inputs.

 For the annual goodwill and intangible franchise rights impairment assessment conducted in the fourth quarter of 2023, the Company elected to perform a qualitative assessment and determined that it was not more-likely-than-not that the fair values of the Company’s reporting units were less than their carrying values.

 No impairments of goodwill or intangible franchise rights were recorded during the years ended December 31, 2023, 2022 and 2021. 

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 The following table sets forth the change in the carrying amount of goodwill for the Company for the year ended December 31, 2023 (in thousands):

 Balance December 31, 2022

 $ 
 416,363 
 
 Acquisitions during 2023

 3,250 
 
 Currency translation

 1,095 
 
 Balance December 31, 2023

 $ 
 420,708 
 
 Equity Method Investments 

 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. 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. Income (loss) related to the 20 % equity owner of RTC Canada is reflected in the accompanying consolidated financial statements as a noncontrolling interest. See Note 15 – 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 for the year ended December 31, 2022. The Company is accounting for the business as a joint venture and recognizes the investment using the equity method. The Company’s equity income in NGFS is included in the line item Other income on the Consolidated Statements of Income.

 Income Taxes 

 Management’s judgment is required to determine the provisions for income taxes and to determine whether deferred tax assets will be realized in full or in part. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. When it is more likely than not that all or some portion of specific deferred income tax assets will not be realized, a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable. Accordingly, the facts and financial circumstances impacting deferred income tax assets are reviewed quarterly and management’s judgment is applied to determine the amount of valuation allowance required, if any, in any given period.

 In determining its provision for income taxes, the Company uses an annual effective income tax rate based on annual income, permanent differences between book and tax income, and statutory income tax rates. The effective income tax rate also reflects its assessment of the ultimate outcome of tax audits. The Company adjusts its annual effective income tax rate as additional information on outcomes or events becomes available. Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur.

 The Company’s income tax returns are periodically audited by tax authorities. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions. In evaluating the exposures associated with its various tax filing positions, the Company adjusts its liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.

 The Company’s liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with its various filing positions. The Company’s effective income tax rate is also affected by changes in tax law, the level of earnings and the results of tax audits. Although the Company believes that the judgments and estimates are reasonable, actual results could differ, and the Company may be exposed to losses or gains that could be material. An unfavorable tax settlement would generally require use of the Company’s cash and result in an increase in its effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in the Company’s effective income tax rate in the period of resolution. The Company’s income tax expense includes the impact of reserve provisions and changes to reserves that it considers appropriate, as well as related interest.

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 Revenue Recognition Policies 

 The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASU 2014-09, “ Revenue from Contracts with Customers ( “ Topic 606 ” ) , the Company performs the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. The Company then assesses whether each promised good or service is distinct and recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for revenue, see Note 17 – Revenue of the Notes to Consolidated Financial Statements.

 Rental and Lease Sales 

 The Company leases commercial vehicles that the Company owns to customers. Lease and rental revenue is recognized over the period of the related lease or rental agreement. Variable rental revenue is recognized when it is earned.

 Cost of Sales 

 For the Company’s new and used commercial vehicle operations, cost of sales consists primarily of the Company’s actual purchase price, plus make-ready expenses, less any applicable manufacturers’ incentives. For the Company’s parts operations, cost of sales consists primarily of the Company’s actual purchase price, less any applicable manufacturers’ incentives. For the Company’s service and collision center operations, technician labor cost is the primary component of cost of sales. For the Company’s rental and leasing operations, cost of sales consists primarily of depreciation and amortization, rent, maintenance costs, license costs and interest expense considered direct and incremental on the lease and rental fleet owned and leased by the Company. There are no costs of sales associated with the Company’s finance and insurance revenue or other revenue.

 Leases 

 The Company leases commercial vehicles and real estate under finance and operating leases. The Company determines whether an arrangement is a lease at its inception. For leases with terms greater than twelve months, the Company records a lease asset and liability at the present value of lease payments over the term. Many of the Company’s leases include renewal options and termination options that are factored into its determination of lease payments when appropriate.

 When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of its leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

 Taxes Assessed by a Governmental Authority 

 The Company accounts for sales taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction on a net (excluded from revenues) basis.

 Selling, General and Administrative Expenses 

 Selling, general and administrative expenses consist primarily of incentive-based compensation for sales, finance and general management personnel, salaries for administrative personnel and expenses for rent, marketing, insurance, utilities and other general operating purposes.

 Stock Based Compensation 

 The Company applies the provisions of ASC topic 718-10, “ Compensation – Stock Compensation, ” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including grants of employee stock options, restricted stock units, restricted stock awards and employee stock purchases under the Employee Stock Purchase Plan, based on estimated fair values.

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 The Company uses the Black-Scholes option-pricing model to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods.

 Compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Stock-based compensation expense is recognized based on awards expected to vest. Accordingly, stock-based compensation expense has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 The Company determines the fair value of share-based payment awards on the date of grant using an option-pricing model that is affected by the Company’s stock price, as well as assumptions regarding a number of subjective variables. These variables include the Company’s expected stock price volatility over the term of the awards and actual and projected stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s stock options have characteristics that are significantly different from traded options and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of fair value and it may not be indicative of the fair value observed in a market transaction between a willing buyer and a willing seller.

 The following table reflects the weighted-average fair value of stock options granted during each period using the Black-Scholes option valuation model with the following weighted-average assumptions used:

 2023

 2022

 2021

 Weighted-average stock volatility

 34.60 
 % 
 
 34.97 
 % 
 
 36.03 
 % 
 
 Expected dividend yield

 1.54 
 % 
 
 1.44 
 % 
 
 1.65 
 % 
 
 Risk-free interest rate

 3.58 
 % 
 
 2.13 
 % 
 
 1.07 
 % 
 
 Expected life (years)

 6.0 
 
 6.0 
 
 6.0 
 
 Weighted-average fair value of stock options granted

 $ 
 11.82 
 
 $ 
 11.21 
 
 $ 
 9.85 
 
 The Company computes its historical stock price volatility in accordance with ASC Topic 718-10. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The expected life of stock options represents the weighted-average period the stock options are expected to remain outstanding.

 Advertising Costs 

 Advertising costs are expensed as incurred. Advertising and marketing expense was $ 10.0 million for 2023, $ 8.7 million for 2022 and $ 7.5 million for 2021. Advertising and marketing expense is included in selling, general and administrative expense.

 Accounting for Internal Use Software 

 The Company’s accounting policy with respect to accounting for computer software developed or obtained for internal use is consistent with ASC topic 350-40 (Internal Use Software) , which provides guidance on accounting for the costs of computer software developed or obtained for internal use and identifies characteristics of internal-use software. The Company has capitalized software costs, including capitalized interest, of approximately $ 3.0 million as of December 31, 2023, net of accumulated amortization of $ 16.0 million, and had $ 4.2 million as of December 31, 2022, net of accumulated amortization of $ 14.9 million. 

 Insurance 

 The Company utilizes a captive insurance company to manage its auto and general commercial liability insurance, which the Company supplements with excess insurance coverage at a level management believes is sufficient. The Company is partially self-insured for a portion of the claims related to its worker’s compensation, medical insurance and vehicle inventory. The Company uses actuarial information provided from third-party administrators to calculate an accrual for claims incurred, but not reported, and for the remaining portion of claims that have been reported. The Company is fully self-insured for claims related to its real and personal property (except for its vehicle inventor, as noted above). 

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 Fair Value Measurements 

 The Company has various financial instruments that it must measure at fair value on a recurring basis. See Note 9 – Financial Instruments and Fair Value of the Notes to Consolidated Financial Statements, for further information. The Company also applies the provisions of fair value measurement to various nonrecurring measurements for its financial and nonfinancial assets and liabilities.

 Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The Company measures its assets and liabilities using inputs from the following three levels of the fair value hierarchy:

 Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 Level 3 includes unobservable inputs that reflect the Company’s assumptions about what factors market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.

 Recent Accounting Pronouncements 

 In November 2023, the Financial Accounting Standards Board (“FASB”) issued updated accounting guidance related to annual and interim segment disclosures. The updated accounting guidance, among other things, requires disclosure of certain significant segment expenses. The Company will adopt the updated accounting guidance in its Annual Report on Form 10-K for the year ended December 31, 2024. The Company is currently evaluating the impact the adoption of the new accounting guidance will have on its segment disclosures in Note 16.

 In December 2023, the FASB issued updated accounting guidance related to income tax disclosures. The updated accounting guidance, among other things, requires additional disclosure primarily related to the income tax rate reconciliation and income taxes paid. The Company will adopt the updated accounting guidance in its Annual Report on Form 10-K for the year ended December 31, 2025. The Company is currently evaluating the impact the adoption of the new accounting guidance will have on its income tax disclosures in Note 13.

 3.

 SUPPLIER CONCENTRATION :

 Major Suppliers and Dealership Agreements 

 The Company has entered into dealership agreements with various manufacturers of commercial vehicles and buses (“Manufacturers”). These agreements are nonexclusive agreements that allow the Company to stock, sell at retail and service commercial vehicles and sell parts from the Manufacturers in the Company’s defined area of responsibility. The agreements allow the Company to use the Manufacturers’ names, trade symbols and intellectual property and expire as follows:

 Manufacturer

 Expiration Dates

 Peterbilt

 July 2024

 International

 May 2025 through January 2029

 Isuzu

 Indefinite

 Hino

 Indefinite

 Ford

 Indefinite

 Blue Bird

 August 2024

 IC Bus

 May 2025 through December 2027

 Dennis Eagle

 Indefinite

 These agreements, as well as agreements with various other Manufacturers, impose a number of restrictions and obligations on the Company, including restrictions on a change in control of the Company and the maintenance of certain required levels of working capital. Violation of these restrictions could result in the loss of the Company’s right to purchase the Manufacturers’ products and use the Manufacturers’ trademarks.

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 The Company purchases its new Peterbilt vehicles from Peterbilt and most of the parts sold at its Peterbilt dealerships from PACCAR, Inc, the parent company of Peterbilt, at prevailing prices charged to all franchised dealers. Sales of new Peterbilt commercial vehicles accounted for approximately 50.7 % of the Company’s new vehicle sales revenue for the year ended December 31, 2023, 59.6 % of the Company’s new vehicle sales revenue for the year ended December 31, 2022, and 62.5 % of the Company’s new vehicle sales revenue for the year ended December 31, 2021.

 Primary Lenders 

 The Company purchases its new and used commercial vehicle inventories with the assistance of floor plan financing programs as described in Note 7 to these Notes to Consolidated Financial Statements. The Company finances the majority of all new commercial vehicle inventory and the loan value of its used commercial vehicle inventory under the Floor Plan Credit Agreement with BMO Harris. The Floor Plan Credit Agreement includes an aggregate loan commitment of $ 1.0 billion. The Company’s floor plan financing agreements provide that the occurrence of certain events will be considered events of default. In the event that the Company’s floor plan financing becomes insufficient, or its relationship with any of its current primary lenders terminates, the Company would need to obtain similar financing from other sources. Management believes it can obtain additional floor plan financing or alternative financing if necessary.

 From time to time, the Company uses the WF Credit Agreement to finance its Idealease lease and rental fleet vehicles and for other working capital needs. Pursuant to the terms of the WF Credit Agreement, the WF Lenders have agreed to make up to $ 175.0 million of revolving credit loans for certain of the Company’s capital expenditures, including commercial vehicle purchases for the Company’s Idealease lease and rental fleet, and general working capital needs. The Company expects to use the revolving credit loans available under the WF Credit Agreement primarily for the purpose of purchasing commercial vehicles for the Company’s Idealease lease, rental fleet and other working capital needs.

 The Company uses the PLC Agreement to finance its PacLease lease and rental fleet vehicles. Pursuant to the terms of the PLC Agreement, PLC agreed to make up to $ 300.0 million of revolving credit loans to finance commercial vehicle purchases and other equipment to be leased or rented through the Company’s PacLease franchises.

 RTC Canada uses the RTC Canada Revolving Credit Agreement to finance its Idealease lease and rental fleet vehicles. 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 available upon the request of RTC Canada and consent of BMO.

 RTC Canada uses the RTC Canada Floor Plan Agreement to finance its new and used vehicle inventory. Pursuant to the terms of the RTC Canada Floor Plan 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.

 Concentrations of Credit Risks 

 Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, restricted cash, and accounts receivable. The Company places its cash, cash equivalents and restricted cash with what it considers to be quality financial institutions based on periodic assessments of such institutions. The Company’s cash, cash equivalents and restricted cash may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.

 The Company controls credit risk through credit approvals and by selling a majority of its trade receivables, other than vehicle accounts receivable, without recourse. Concentrations of credit risk with respect to trade receivables are reduced because a large number of geographically diverse customers make up the Company’s customer base; however, substantially all of the Company’s business is concentrated in the United States commercial vehicle markets and related aftermarkets.

 The Company generally sells finance contracts it enters into with customers to finance the purchase of commercial vehicles to third parties. These finance contracts are sold by the Company both with and without recourse. A majority of the Company’s finance contracts are sold without recourse. The Company provides an allowance for doubtful receivables and a reserve for repossession losses related to finance contracts sold with recourse. Historically, the Company’s allowances and reserves have covered losses inherent in these receivables.

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 4.

 ACCOUNTS RECEIVABLE :

 The Company’s accounts receivable, net, consisted of the following (in thousands):

 December 31,

 2023

 2022

 Trade accounts receivable from sale of vehicles

 $ 
 119,575 
 
 $ 
 83,159 
 
 Trade receivables other than vehicles

 98,555 
 
 96,978 
 
 Warranty claims

 21,395 
 
 13,060 
 
 Other accounts receivable

 23,633 
 
 29,776 
 
 Less allowance for credit losses

 ( 3,805 
 ) 
 
 ( 2,322 
 ) 
 
 Total

 $ 
 259,353 
 
 $ 
 220,651 
 
 Accounts receivable as of January 1, 2022 was $ 140.2 million.

 5.

 INVENTORIES :

 The Company’s inventories, net, consisted of the following (in thousands):

 December 31,

 2023

 2022

 New commercial vehicles

 $ 
 1,388,687 
 
 $ 
 955,485 
 
 Used commercial vehicles

 47,036 
 
 86,306 
 
 Parts and accessories

 353,992 
 
 369,562 
 
 Other

 33,100 
 
 34,564 
 
 Less allowance

 ( 21,368 
 ) 
 
 ( 16,488 
 ) 
 
 Total

 $ 
 1,801,447 
 
 $ 
 1,429,429 
 
 6.

 VALUATION ACCOUNTS: 

 Valuation and allowance accounts include the following (in thousands):

 Balance

 Beginning

 of Year

 Net

 Charged to

 Costs and

 Expenses

 Net Write-

 Offs

 Balance

 End

 of Year

 2023 
 
 Reserve for parts inventory

 $ 
 9,423 
 
 $ 
 6,274 
 
 $ 
 ( 6,532 
 ) 
 
 $ 
 9,165 
 
 Reserve for commercial vehicle inventory

 7,065 
 
 11,191 
 
 ( 6,053 
 ) 
 
 12,203 
 
 2022 
 
 Reserve for parts inventory

 $ 
 7,460 
 
 $ 
 7,378 
 
 $ 
 ( 5,415 
 ) 
 
 $ 
 9,423 
 
 Reserve for commercial vehicle inventory

 919 
 
 13,653 
 
 ( 7,507 
 ) 
 
 7,065 
 
 2021 
 
 Reserve for parts inventory

 $ 
 9,315 
 
 $ 
 3,520 
 
 $ 
 ( 5,375 
 ) 
 
 $ 
 7,460 
 
 Reserve for commercial vehicle inventory

 6,075 
 
 ( 536 
 ) 
 
 ( 4,620 
 ) 
 
 919 
 
 Inventory 

 The Company provides a reserve for obsolete and slow moving parts. The reserve is reviewed and, if necessary, adjustments are made on a quarterly basis. The Company relies on historical information to support its reserve. Once the inventory is written down, the Company does not reverse any reserve balance until the inventory is sold.

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 The valuation for new and used commercial vehicle inventory is based on specific identification. A detail of new and used commercial vehicle inventory is reviewed and, if necessary, adjustments to the value of specific vehicles are made on a quarterly basis.

 Accounts Receivable and Allowance for Credit Losses 

 The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected. Under Accounting Standards Topic 326, Financial Instruments – Credit Losses , the Company is required to remeasure expected credit losses for financial instruments held on the reporting date based on historical experience, current conditions and reasonable forecasts.

 Accounts receivable consists primarily of commercial vehicle sales receivables, manufacturers’ receivables and leasing, parts and service sales receivables and other trade receivables. The Company maintains an allowance for credit losses based on the probability of default, its historical rate of losses, aging and current economic conditions. The Company writes off account balances when it has exhausted reasonable collection efforts and determined that the likelihood of collection is remote. These write-offs are charged against the allowance for credit losses.

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

 Balance

 December 31,

 2022

 Provision for

 the Year

 Ended

 December 31,

 2023

 Write offs

 Against

 Allowance,

 net of

 Recoveries

 Balance

 December 31,

 2023

 Commercial vehicle receivables

 $ 
 160 
 
 $ 
 - 
 
 $ 
 (58 
 ) 
 
 $ 
 102 
 
 Manufacturers’ receivables

 573 
 
 2,576 
 
 ( 2,185 
 ) 
 
 964 
 
 Leasing, parts and service receivables

 1,589 
 
 3,212 
 
 ( 3,141 
 ) 
 
 1,660 
 
 Other receivables

 - 
 
 1,066 
 
 13 
 
 1,079 
 
 Total

 $ 
 2,322 
 
 $ 
 6,854 
 
 $ 
 ( 5,371 
 ) 
 
 $ 
 3,805 
 
 7.

 FLOOR PLAN NOTES PAYABLE AND LINES OF CREDIT :

 Floor Plan Notes Payable 

 Floor plan notes are financing agreements to facilitate the Company’s purchase of new and used commercial vehicle inventory. These notes are collateralized by the inventory purchased, and accounts receivable arising from the sale thereof. The Company’s Floor Plan Credit Agreement provides for a loan commitment of up to $ 1.0 billion. The interest rate under the Company’s Floor Plan Credit Agreement is the one month SOFR plus 1.20 %. The effective interest rate applicable to the Company’s Floor Plan Credit Agreement was approximately 6.54 % as of December 31, 2023. The Company utilizes its excess cash on hand to pay down its outstanding borrowings under its Floor Plan Credit Agreement, and the resulting interest earned is recognized as an offset to the Company’s gross interest expense under the Floor Plan Credit Agreement.

 The Company’s RTC Canada Floor Plan Agreement provides for a loan commitment of up to $ 116.7 million CAD 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. Advances under the RTC Canada Floor Plan Agreement bear interest per annum, payable on the first business day of each calendar month, at Term SOFR (as defined in the agreement), plus 1.20 %.

 The Company finances substantially all of the purchase price of its new commercial vehicle inventory and the loan value of its used commercial vehicle inventory under its Floor Plan Credit Agreement and RTC Canada Floor Plan Agreement, under which BMO Harris and BMO pay the manufacturer directly with respect to new commercial vehicles. Amounts borrowed under the Company’s Floor Plan Credit Agreement and RTC Canada Floor Plan Agreement are due when the related commercial vehicle inventory (collateral) is sold. The Company’s Floor Plan Credit Agreement expires September 14, 2026, although BMO Harris has the right to terminate the Floor Plan Credit Agreement at any time upon 360 days written notice and the Company may terminate at any time, subject to specified limited exceptions. On December 31, 2023, the Company had approximately $ 984.4 million outstanding under its Floor Plan Credit Agreement. The Company’s RTC Canada Floor Plan Agreement expires September 14, 2026. On December 31, 2023, the Company had approximately $ 55.9 million CAD outstanding under the RTC Canada Floor Plan Agreement.

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 The Company’s weighted average interest rate for floor plan notes payable was 3.3 % for the year ended December 31, 2023, and 1.6 % for the year ended December 31, 2022, which is net of interest related to prepayments of new and used inventory loans.

 Assets pledged as collateral were as follows (in thousands):

 December 31,

 2023

 2022

 Inventories, new and used vehicles at cost based on specific identification, net of allowance

 $ 
 1,423,521 
 
 $ 
 1,034,727 
 
 Vehicle sale-related accounts receivable

 119,575 
 
 83,158 
 
 Total

 $ 
 1,543,096 
 
 $ 
 1,117,885 
 
 Floor plan notes payable related to vehicles

 $ 
 1,139,744 
 
 $ 
 933,203 
 
 Lines of Credit 

 The Company has a line of credit that provides for a maximum borrowing of $ 20.0 million. There were no advances outstanding under this secured line of credit as of December 31, 2023; however, $ 17.9 million was pledged to secure various letters of credit related to self-insurance products, leaving $ 2.1 million available for future borrowings as of December 31, 2023.

 8.

 LONG-TERM DEBT :

 Long-term debt was comprised of the following variable interest rate term notes (in thousands):

 December 31,

 2023

 2022

 Total long-term debt, net of current maturities

 $ 
 414,002 
 
 $ 
 275,433 
 
 As of December 31, 2023, long-term debt maturities were as follows (in thousands):

 2024

 $ 
 - 
 
 2025

 265,000 
 
 2026

 149,002 
 
 2027

 - 
 
 2028

 - 
 
 Thereafter

 - 
 
 Total

 $ 
 414,002 
 
 On September 14, 2021, the Company entered into the WF Credit Agreement with the WF Lenders and the WF Agent. Pursuant to the terms of the WF Credit Agreement (as amended), the WF Lenders have agreed to make up to $ 175.0 million of revolving credit loans for certain of the Company’s capital expenditures, including commercial vehicle purchases for the Company’s Idealease lease and rental fleet, and general working capital needs. Borrowings under the WF Credit Agreement bear interest per annum, payable on each interest payment date, as defined in the WF Credit Agreement, at (A) SOFR plus (i) 1.25 % or (ii) 1.5 %, depending on the Company’s consolidated leverage ratio or (B) on or after the term SOFR transition date, the term SOFR plus (i) 1.25 % or (ii) 1.5 %, depending on the Company’s 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. The Company may terminate the commitments at any time. The Company expects to use the revolving credit loans available under the WF Credit Agreement primarily for the purpose of purchasing commercial vehicles for the Company’s Idealease lease and rental fleet.

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 On November 1, 2023, the Company entered into the PLC Agreement. Pursuant to the terms of the PLC Agreement, PLC agreed to make up to $ 300.0 million of revolving credit loans to finance certain of the Company’s capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through the Company’s PacLease franchises. Advances under the PLC Agreement bear interest per annum, payable on the fifth day of the following month, at the Company’s option, at either (A) the prime rate, minus 1.55 %, provided that the floating rate of interest is subject to a floor of 0 %, or (B) a fixed rate, to be determined between the Company and PLC in each instance of borrowing at a fixed rate. The PLC Agreement expires on December 1, 2025, although either party has the right to terminate the PLC Agreement at any time upon 180 days written notice.

 On May 31, 2022, RTC Canada entered into the RTC Canada Revolving Credit Agreement. 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 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 CDOR, plus 1.35 %. The RTC Canada Revolving Credit Agreement expires September 14, 2026.

 The interest associated with the WF Credit Agreement, the PLC Agreement and the RTC Canada Revolving Credit Agreement is recorded in interest expense on the Consolidated Statement of Income. The WF Credit Agreement, PLC Agreement and RTC Canada Revolving Credit Agreement are general borrowing facilities, whereas prior to these credit agreements, interest expense associated with the Company’s lease and rental fleet was recorded in cost of sales as the borrowings were directly related to each lease and rental vehicle.

 The Company’s floor plan financing agreements and the WF Credit Agreement require the Company to satisfy various financial ratios such as the leverage ratio, the asset coverage ratio and the fixed charge coverage ratio. As of December 31, 2023, the Company was in compliance with all debt covenants related to its floor plan credit agreements and the WF Credit Agreement. The Company does not anticipate any breach of the covenants in the foreseeable future.

 9.

 FINANCIAL INSTRUMENTS AND FAIR VALUE :

 The Company measures certain financial assets and liabilities at fair value on a recurring basis. Financial instruments consist primarily of cash, accounts receivable, accounts payable and floor plan notes payable. The carrying values of the Company’s financial instruments approximate fair value due either to their short-term nature or existence of variable interest rates, which approximate market rates. Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments as of December 31, 2023, and 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. Because the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including remaining maturities, interest rate, credit rating, collateral and liquidity. Accordingly, the Company concluded that the valuation measurement inputs of its long-term debt represent, at its lowest level, current market interest rates available to the Company for similar debt and the Company’s current credit standing. The Company has categorized such debt within Level 2 of the hierarchy framework. The carrying amount approximates fair value.

 10.

 LEASES :

 In February 2016, the FASB issued ASU No. 2016-02, “ Leases ( “ Topic 842 ” ), ” which was intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than twelve months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

 A lease is classified as a finance lease if any of the following conditions exist on the date of lease commencement:

 ●

 The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

 ●

 The lease provides the lessee an option to purchase the underlying asset, and that option is reasonably certain to be exercised.

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 ●

 The lease term is for the major part of the remaining economic life of the underlying asset.

 ●

 The present value of the lease payments equals or exceeds substantially all of the fair value of the underlying asset.

 ●

 The underlying asset is of such a specialized nature that only the lessee can use it without major modifications.

 ●

 The lessor expects to have no alternative use for the leased asset at the end of the lease.

 The Company applied the practical expedients permitted under Topic 842, which among other things, allowed it to retain its existing assessment of whether an arrangement is, or contains, a lease and whether such lease is classified as an operating or finance lease. The Company made an accounting policy election that keeps leases with an initial term of twelve months or less off of the balance sheet and results in recognizing those lease payments in the Consolidated Statements of Income and Comprehensive Income on a straight-line basis over the lease term.

 The Company leases certain commercial vehicles and real estate under finance and operating leases. The Company determines whether an arrangement is a lease at its inception. For leases with terms greater than twelve months, the Company records the related asset and obligation at the present value of lease payments over the term. Many of the Company’s leases include renewal options and/or termination options that are factored into its determination of lease payments when appropriate. The Company has elected not to account for lease and nonlease components as a single combined lease component as lessee. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of its leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

 Lease of Vehicles as Lessee 

 The Company leases commercial vehicles as the lessee under finance leases and operating leases. The lease terms vary from one year to ten years. Commercial vehicle finance leases have always been reported on the Consolidated Balance Sheet, while operating leases were added to the Consolidated Balance Sheet in 2019 with the adoption of Topic 842. These vehicles are then subleased or rented by the Company to customers under various agreements. The Company received sublease income under non-cancelable subleases of $ 50.0 million for the year ended December 31, 2023, and $ 41.7 million for the year ended December 31, 2022.

 The Company usually guarantees the residual value of vehicles under operating lease and finance lease arrangements. As of December 31, 2023, the Company guaranteed commercial vehicle residual values of approximately $ 72.3 million under operating lease and finance lease arrangements.

 Lease of Facilities as Lessee 

 The Company’s facility leases are classified as operating and finance leases and primarily reflect its use of dealership facilities and office space. The lease terms vary from one year to 83 years, some of which include options to extend the lease term, and some of which include options to terminate the lease within one year. The Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities.

 The Company leases facilities in Ontario, Canada from entities owned by the noncontrolling interest holder of RTC Canada. In 2023, the Company recorded approximately $ 2.1 million in operating lease expense related to these leases.

 Lease Costs and Supplemental Information 

 Components of lease cost are as follows (in thousands):

 Year Ended

 Component

 Classification

 December 31,

 2023

 December 31,

 2022

 Operating lease cost

 SG&A expense

 $ 
 14,924 
 
 $ 
 11,288 
 
 Operating lease cost

 Lease and rental cost of products sold

 5,981 
 
 6,081 
 
 Finance lease cost – amortization of right-of-use assets

 Lease and rental cost of products sold

 24,655 
 
 20,135 
 
 Finance lease cost – interest on lease liabilities

 Lease and rental cost of products sold

 5,454 
 
 4,783 
 
 Short-term lease cost

 SG&A expense

 191 
 
 413 
 
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 Table of Contents 

 Supplemental cash flow information and non-cash activity related to operating and finance leases are as follows (in thousands):

 Year Ended

 December 31,

 2023

 December 31,

 2022

 Operating cash flow information:

 Cash paid for amounts included in the measurement of lease liabilities

 $ 
 26,359 
 
 $ 
 21,874 
 
 Financing cash flow information:

 Cash paid for amounts included in the measurement of lease liabilities

 $ 
 17,693 
 
 $ 
 14,780 
 
 Non-cash activity:

 Operating lease right-of-use assets obtained in exchange for lease obligations

 $ 
 40,093 
 
 $ 
 54,385 
 
 Weighted-average remaining lease term and discount rate for operating and finance leases as of December 31, 2023 are as follows:

 Finance Leases

 Operating Leases

 Weighted-average remaining lease term (in months)

 39 

 106 

 Weighted-average discount rate

 4.3 
 % 
 
 4.8 
 % 
 
 Maturities of lease liabilities by fiscal year for finance leases and operating leases as of December 31, 2023 are as follows (in thousands):

 Finance

 Leases

 Operating

 Leases

 2024

 $ 
 41,189 
 
 $ 
 23,359 
 
 2025

 34,172 
 
 19,282 
 
 2026

 26,904 
 
 18,578 
 
 2027

 18,587 
 
 17,730 
 
 2028

 14,961 
 
 15,502 
 
 2029 and beyond

 12,730 
 
 60,158 
 
 Total lease payments

 $ 
 148,543 
 
 $ 
 154,609 
 
 Less: Imputed interest

 ( 14,807 
 ) 
 
 ( 32,658 
 ) 
 
 Present value of lease liabilities

 $ 
 133,736 
 
 $ 
 121,951 
 
 Lease of Vehicles as Lessor 

 The Company leases commercial vehicles that the Company owns to customers primarily over periods of one to ten years. The Company applied the practical expedient permitted within Topic 842 that allows it not to separate lease and nonlease components. Nonlease components typically consist of maintenance and licensing for the commercial vehicle. The variable nonlease components are generally based on mileage. Some leases contain an option for the lessee to purchase the commercial vehicle.

 The Company’s policy is to depreciate its lease and rental fleet using a straight-line method over each customer’s contractual lease term. The lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term. This policy results in the Company realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term.

 Sales-type leases are recognized by the Company as lease receivables. The lessee obtains control of the underlying asset and the Company recognizes sales revenue upon lease commencement. The receivable for sales-type leases as of December 31, 2023, in the amount of $ 8.4 million is reflected in Other Assets on the Consolidated Balance Sheet.

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 Table of Contents 

 Minimum rental revenue to be received for non-cancelable leases and subleases in effect as of December 31, 2023, are as follows (in thousands):

 2024

 $ 
 174,835 
 
 2025

 140,135 
 
 2026

 105,495 
 
 2027

 75,672 
 
 2028

 44,081 
 
 Thereafter

 25,405 
 
 Total

 $ 
 565,623 
 
 Rental income during the year ended December 31, 2023, and 2022, consisted of the following (in thousands):

 2023

 2022

 Minimum rental payments

 $ 
 306,897 
 
 $ 
 278,330 
 
 Nonlease payments

 46,883 
 
 43,927 
 
 Total

 $ 
 353,780 
 
 $ 
 322,257 
 
 11.

 SHARE BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS :

 Employee Stock Purchase Plan 

 The Company’s 2004 Employee Stock Purchase Plan, as amended and restated (the “Employee Stock Purchase Plan”), allows eligible employees to contribute up to $ 10,625 of their base earnings every six months toward the semi-annual purchase of the Company’s Class A common stock. The employee’s purchase price is 85 % of the lesser of the closing price of the Class A common stock on the first business day or the last business day of the semi-annual offering period, as reported by The NASDAQ Global Select Market. Employees may purchase shares having a fair market value of up to $ 25,000 (measured as of the first day of each semi-annual offering period) for each calendar year. On May 16, 2023, the Company’s shareholders approved the amendment and restatement of the Employee Stock Purchase Plan to increase the number of shares of Class A Common Stock authorized for issuance thereunder by 600,000 shares. Under the Employee Stock Purchase Plan, there are approximately 1,082,000 shares remaining of the 4,650,000 shares of the Company’s Class A common Stock that were reserved for issuance. The Company issued 208,854 shares under the Employee Stock Purchase Plan during the year ended December 31, 2023 and 201,173 shares during the year ended December 31, 2022. Of the 7,860 employees eligible to participate, approximately 2,242 elected to participate in the plan as of December 31, 2023.

 Non-Employee Director Stock Option Plan 

 The Rush Enterprises, Inc. 2006 Non-Employee Director Stock Option Plan, as amended and restated (the “Director Plan”), reserved 1,125,000 shares of Class A common stock for issuance upon exercise of any awards granted under the plan. The Director Plan is designed to attract and retain highly qualified non-employee directors. Currently, each non-employee director receives a grant of the Company’s Class A common stock equivalent to a compensation value of $ 750,000 ; provided however, that directors may elect to receive up to 40 % of the value of such grant in cash. In 2023, three non-employee directors each received a grant of 4,116 shares of the Company’s Class A common stock, two non-employee directors each received a grant of 2,469 shares of the Company’s Class A common stock and $ 58,000 cash and one non-employee director received a grant of 2,880 shares of the Company’s Class A common stock and $ 43,500 cash, for total compensation equivalent to $ 145,000 each. One director who was appointed to the Company’s Board of Directors in October of 2023 received 1,501 shares of the Company’s Class A common stock, for total compensation equivalent to $ 72,500 . In 2022, three non-employee directors each received a grant of 2,757 shares of the Company’s Class A common stock, two non-employee directors each received a grant of 1,654 shares of the Company’s Class A common stock and $ 58,000 cash and one non-employee director received a grant of 1,930 shares of the Company’s Class A common stock and $ 43,500 cash, for total compensation equivalent to $ 145,000 each. Under the Director Plan, there are approximately 180,298 shares remaining for issuance of the 1,125,000 shares of the Company’s Class A common stock that were reserved for issuance. The Company granted 21,667 shares of Class A common stock under the Director Plan during the year ended December 31, 2023 and 20,264 shares of Class A common stock under the Director Plan during the year ended December 31, 2022.

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 Table of Contents 

 Employee Incentive Plans 

 In May 2007, the Board of Directors and shareholders adopted the Rush Enterprises, Inc. 2007 Long-Term Incentive Plan (the “2007 Incentive Plan”). The 2007 Incentive Plan provides for the grant of stock options (which may be nonqualified stock options or incentive stock options for tax purposes), stock appreciation rights issued independent of or in tandem with such options (“SARs”), restricted stock awards and performance awards. The 2007 Incentive Plan was amended and restated on May 20, 2014, May 16, 2017, May 12, 2020 and May 16, 2023. The number of shares available for issuance under the plan include 21,600,000 shares of Class A common stock and 9,000,000 shares of Class B common stock.

 The aggregate number of shares of common stock subject to stock options or SARs that may be granted to any one participant in any year under the 2007 Incentive Plan is 150,000 shares of Class A common stock or 150,000 shares of Class B common stock. Each option granted pursuant to the 2007 Incentive Plan has a 150,000 -year term from the grant date and vests in three equal annual installments beginning on the third anniversary of the grant date. The Company has three shares of Class A common stock and 9,000,000 shares of Class B common stock reserved for issuance under the Company’s 2007 Incentive Plan. As of December 31, 2023, approximately 3,684,518 shares of Class A common stock and 2,681,701 shares of Class B common stock are available for issuance under the Company’s 2007 Incentive Plan. The Company issues new shares of its Class A or Class B common stock upon the exercise of stock options or vesting of restricted stock awards. During the year ended December 31, 2023, the Company granted to employees 790,673 options to purchase Class A common stock and 551,138 restricted Class B common stock awards under the 2007 Incentive Plan. During the year ended December 31, 2022, the Company granted to employees 767,850 options to purchase Class A common stock and 531,900 shares of restricted Class B common stock awards under the 2007 Incentive Plan. Restricted stock awards are issued when granted but are subject to vesting requirements.

 Valuation and Expense Information 

 Stock-based compensation expense related to stock options, restricted stock awards and employee stock purchases was $ 30.4 million for the year ended December 31, 2023, $ 25.3 million for the year ended December 31, 2022, and $ 22.2 million for the year ended December 31, 2021. Cash received from options exercised and shares purchased under all share-based payment arrangements was $ 18.0 million for the year ended December 31, 2023, $ 13.3 million for the year ended December 31, 2022, and $ 18.3 million for the year ended December 31, 2021.

 The following table presents a summary of the Company’s stock option activity and related information for the year ended December 31, 2023:

 Weighted

 Weighted

 Average

 Average

 Remaining

 Aggregate

 Exercise

 Contractual

 Intrinsic

 Options

 Shares

 Price

 Life (in Years)

 Value

 Balance of Outstanding Options at January 1, 2023

 5,872,862 
 
 $ 
 20.13 
 
 Granted

 790,673 
 
 35.04 
 
 Exercised

 ( 800,988 
 ) 
 
 15.06 
 
 Forfeited

 ( 40,249 
 ) 
 
 31.12 
 
 Balance of Outstanding Options at December 31, 2023

 5,822,298 
 
 $ 
 22.76 
 
 5.8 
 
 $ 
 160,233,514 
 
 Expected to vest after December 31, 2023

 3,268,970 
 
 $ 
 28.47 
 
 7.5 
 
 $ 
 71,368,515 
 
 Vested and exercisable at December 31, 2023

 2,520,629 
 
 $ 
 15.18 
 
 3.7 
 
 $ 
 88,341,805 
 
 The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of the Company’s Class A common stock on December 31, 2023, which was $ 50.30 . The total intrinsic value of options exercised was $ 19.8 million during the year ended December 31, 2023, $ 11.6 million during the year ended December 31, 2022, and $ 23.4 million during the year ended December 31, 2021.

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 The following table presents a summary of the status of the number of shares underlying the Company’s non-vested stock options as of December 31, 2023, and changes during the year ended December 31, 2023:

 Weighted

 Average

 Number of

 Grant Date

 Non-vested Shares

 Shares

 Fair Value

 Non-vested at January 1, 2023

 3,600,568 
 
 $ 
 7.35 
 
 Granted

 790,673 
 
 11.82 
 
 Vested

 ( 1,049,321 
 ) 
 
 5.56 
 
 Forfeited

 ( 40,249 
 ) 
 
 9.93 
 
 Non-vested at December 31, 2023

 3,301,671 
 
 $ 
 8.95 
 
 The total fair value of vested options was $ 5.8 million during the year ended December 31, 2023, $ 5.9 million during the year ended December 31, 2022, and $ 5.0 million during the year ended December 31, 2021. The weighted-average grant date fair value of options granted was $ 11.82 per share during the year ended December 31, 2023, $ 11.21 per share during the year ended December 31, 2022, and $ 9.85 per share during the year ended December 31, 2021.

 Stock Awards 

 The Company granted restricted stock awards to certain of its employees under the 2007 Incentive Plan and unrestricted stock awards to its non-employee directors under the Director Plan during the year ended December 31, 2023. The restricted stock awards granted to employees vest in three equal installments on the first, second and third anniversary of the grant date and are forfeited in the event the recipient’s employment or relationship with the Company is terminated prior to vesting, except as a result of retirement or under certain circumstances associated with a change of control or involuntary termination, as further described in the Company’s executive transition plan. The fair value of the restricted stock awards granted to the Company’s employees is amortized to expense on a straight-line basis over the restricted stock’s vesting period. The shares granted to non-employee directors are expensed on the grant date.

 The following table presents a summary of the Company’s non-vested restricted stock awards at December 31, 2023:

 Weighted

 Average

 Weighted

 Remaining

 Aggregate

 Average

 Contractual

 Intrinsic

 Grant Date

 Stock Awards and Units

 Shares

 Life (in Years)

 Value

 Fair Value

 Outstanding non-vested shares at January 1, 2023

 1,128,981 
 
 $ 
 27.92 
 
 Granted

 572,804 
 
 36.97 
 
 Vested

 ( 627,393 
 ) 
 
 24.67 
 
 Forfeited

 ‒ 
 
 ‒ 
 
 Outstanding non-vested at December 31, 2023

 1,074,392 
 
 8.6 
 
 $ 
 56,921,288 
 
 34.64 
 
 Expected to vest after December 31, 2023

 1,071,636 
 
 8.6 
 
 $ 
 56,775,267 
 
 34.64 
 
 The total fair value of the shares issued upon the vesting of restricted and unrestricted stock awards during the year ended December 31, 2023 was $ 15.5 million. The weighted-average grant date fair value of stock awards granted was $ 36.97 per share during the year ended December 31, 2023, $ 36.97 per share during the year ended December 31, 2022 and $ 29.91 per share during the year ended December 31, 2021.

 As of December 31, 2023, the Company had $ 11.2 million of unrecognized compensation expense related to non-vested employee stock options to be recognized over a weighted-average period of 2.2 years and $ 12.2 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 12.2 years.

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 Defined Contribution Plan 

 The Company has a defined contribution plan (the “Rush 401k Plan”) that is available to all U.S. based employees. Each employee who has completed 30 days of continuous service is entitled to enter the Rush 401k Plan on the first day of the following month. Participating employees may contribute from 1 % to 1 % of their total gross compensation. However, certain highly compensated employees are limited to a maximum contribution of 15 % of total gross compensation. The Company’s policy is for the first 10 % of an employee’s contribution, the Company contributes an amount equal to 20 % of the employees’ contributions for those employees with less than five years of service and an amount equal to 40 % of the employees’ contributions for those employees with more than five years of service. The Company incurred expenses related to the Rush 401k Plan of approximately $ 13.3 million during the year ended December 31, 2023, $ 12.1 million during the year ended December 31, 2022, and $ 8.2 million during the year ended December 31, 2021.

 Deferred Compensation Plan 

 On November 6, 2010, the Board of Directors of the Company adopted the Rush Enterprises, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”) pursuant to which certain employees and directors may elect to defer a portion of their annual compensation. The Deferred Compensation Plan was amended and restated effective May 18, 2021, in order to bring the plan into conformance with current “best” practices. The Company established a rabbi trust to finance obligations under the Deferred Compensation Plan with corporate-owned variable life insurance contracts. Participants are 100 % vested in their respective deferrals and the earnings thereon. The first deferral election period began on January 1, 2011. The Company’s liability related to the Deferred Compensation Plan was $ 24.8 million on December 31, 2023, and $ 19.4 million on December 31, 2022. The related cash surrender value of the life insurance contracts was $ 18.0 million on December 31, 2023, and $ 13.0 million on December 31, 2022.

 The Company currently does not provide any post-retirement benefits nor does it provide any post-employment benefits.

 12.

 EARNINGS PER SHARE :

 Basic earnings per share (“EPS”) were computed by dividing income from continuing operations by the weighted average number of shares of common stock outstanding during the period. Diluted EPS differs from basic EPS due to the assumed conversions of potentially dilutive options, restricted shares awards and restricted stock unit awards that were outstanding during the period.

 Each share of Class A common stock ranks equal to each share of Class B common stock with respect to receipt of any dividends or distributions declared on shares of common stock and the right to receive proceeds on liquidation or dissolution of the Company after payment of its indebtedness and liquidation preference payments to holders of any preferred shares. However, holders of Class A common stock have 1/20th of one vote per share on all matters requiring a shareholder vote, while holders of Class B common stock have one full vote per share.

 The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for income from continuing operations (in thousands, except per share amounts):

 2023

 2022

 2021

 Numerator-

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

 $ 
 347,055 
 
 $ 
 391,382 
 
 $ 
 241,415 
 
 Denominator-

 Denominator for basic earnings per share – weighted average shares outstanding

 81,089 
 
 83,100 
 
 83,838 
 
 Effect of dilutive securities − Employee and director stock options and restricted share awards

 2,631 
 
 2,627 
 
 2,979 
 
 Denominator for diluted earnings per share − adjusted weighted average shares outstanding and assumed conversions

 83,720 
 
 85,727 
 
 86,817 
 
 Basic earnings per common share

 $ 
 4.28 
 
 $ 
 4.71 
 
 $ 
 2.88 
 
 Diluted earnings per common share and common share equivalents

 $ 
 4.15 
 
 $ 
 4.57 
 
 $ 
 2.78 
 
 Options to purchase shares of common stock that were outstanding for the years ended December 31, 2023, 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):

 2023

 2022

 2021

 Anti-dilutive options – weighted average

 1,282 
 
 1,271 
 
 655 
 
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 Table of Contents 

 13.

 INCOME TAXES: 

 The tax provisions are summarized as follows (in thousands):

 Year Ended December 31,

 2023

 2022

 2021

 Income before income taxes:

 Domestic

 $ 
 455,288 
 
 $ 
 502,141 
 
 $ 
 307,260 
 
 Foreign

 6,773 
 
 7,186 
 
 6,423 
 
 Total

 462,061 
 
 509,327 
 
 313,683 
 
 Current provision

 Federal

 $ 
 87,270 
 
 $ 
 93,942 
 
 $ 
 47,475 
 
 State

 16,864 
 
 16,516 
 
 10,759 
 
 Foreign

 2,265 
 
 2,523 
 
 - 
 
 Total

 106,399 
 
 112,981 
 
 58,234 
 
 Deferred provision (benefit)

 Federal

 7,617 
 
 7,975 
 
 13,809 
 
 State

 505 
 
 ( 565 
 ) 
 
 ( 631 
 ) 
 
 Foreign

 ( 521 
 ) 
 
 ( 3,149 
 ) 
 
 856 
 
 Total

 7,601 
 
 4,261 
 
 14,034 
 
 Provision for income taxes

 $ 
 114,000 
 
 $ 
 117,242 
 
 $ 
 72,268 
 
 A reconciliation of taxes based on the federal statutory rates and the provisions (benefits) for income taxes are summarized as follows (in thousands):

 Year Ended December 31,

 2023

 2022

 2021

 Amount

 Rate

 Amount

 Rate

 Amount

 Rate

 Income taxes at the federal statutory rate

 $ 
 97,032 
 
 21.0 
 % 
 
 $ 
 106,959 
 
 21.0 
 % 
 
 $ 
 65,694 
 
 21.0 
 % 
 
 State income taxes, net of federal benefit (a) 

 14,120 
 
 3.1 
 
 12,708 
 
 2.5 
 
 7,874 
 
 2.5 
 
 Tax effect of permanent differences

 1,357 
 
 0.3 
 
 ( 488 
 ) 
 
 ( 0.1 
 ) 
 
 ( 2502 
 ) 
 
 ( 0.8 
 ) 
 
 Foreign tax rate differential

 266 
 
 0.0 
 
 ( 2134 
 ) 
 
 ( 0.4 
 ) 
 
 ( 313 
 ) 
 
 ( 0.1 
 ) 
 
 Other, net

 1,225 
 
 0.3 
 
 197 
 
 0.0 
 
 1,515 
 
 0.5 
 
 Provision for income taxes

 $ 
 114,000 
 
 24.7 
 % 
 
 $ 
 117,242 
 
 23.0 
 % 
 
 $ 
 72,268 
 
 23.1 
 % 
 
 (a) State taxes in Texas, California and Illinois made up the majority (greater than 50 percent) of the tax effect in this category 

 The following summarizes the components of net deferred income tax liabilities included in the balance sheet (in thousands):

 December 31,

 2023

 2022

 Deferred income tax (assets) liabilities:

 Inventory

 $ 
 ( 5,215 
 ) 
 
 $ 
 ( 4,710 
 ) 
 
 Accounts receivable

 ( 436 
 ) 
 
 ( 430 
 ) 
 
 Vehicle finance lease obligations

 ( 31,178 
 ) 
 
 ( 28,514 
 ) 
 
 Finance and operating leases - Liability

 ( 29,446 
 ) 
 
 ( 25,283 
 ) 
 
 Stock options

 ( 8,785 
 ) 
 
 ( 7,525 
 ) 
 
 Accrued liabilities

 ( 4,653 
 ) 
 
 ( 3,632 
 ) 
 
 State net operating loss carry forward

 ( 1,111 
 ) 
 
 ( 1,268 
 ) 
 
 State tax credit

 ( 34 
 ) 
 
 ( 77 
 ) 
 
 Other

 ( 6,167 
 ) 
 
 ( 5,519 
 ) 
 
 Finance and operating leases - Asset

 29,031 
 
 24,989 
 
 Fixed assets and intangibles

 217,565 
 
 203,939 
 
 Net deferred income tax liability

 $ 
 159,571 
 
 $ 
 151,970 
 
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 As of December 31, 2023, the Company had approximately $ 26.9 million in state net operating loss carry forwards that expire from 2023 to 2042, which result in a deferred tax asset of approximately $ 1.1 million. The Company has concluded that its state net operating losses are more likely than not to be realized and has not recorded a valuation allowance against them.

 The Company had unrecognized income tax benefits totaling $ 6.7 million as a component of accrued liabilities as of December 31, 2023, and $ 5.3 million as of 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. During the years ended December 31, 2023, 2022 and 2021, the Company recognized approximately $ 86,200 , $ 86,200 , and $ 129,660 in interest expense. No amounts were accrued for penalties. The Company had approximately $ 389,000 , $ 389,000 and $ 279,000 of interest accrued as of December 31, 2023, 2022 and 2021, respectively.

 Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $ 22.9 million at December 2023 and $ 18.9 million at December 2022. Those earnings are considered to be indefinitely reinvested. Upon repatriation of those earnings in the form of dividends or otherwise, the Company may be subject to state and local taxes, and/or withholding taxes payable to the various foreign countries. The Company expects to be able to take a 100 % dividends received deduction to offset any U.S. federal income tax liability on the distribution of untaxed earnings and profits.

 The Company does not anticipate a significant change in the amount of unrecognized tax benefits in the next 12 months. As of December 31, 2023, the tax years ended December 31, 2020 through 2023 remained subject to audit by federal tax authorities and the tax years ended December 31, 2019 through 2023, remained subject to audit by state tax authorities.

 The table below presents the reconciliation of the change in the unrecognized tax benefits (in thousands):

 2023

 2022

 2021

 Unrecognized tax benefits at beginning of period

 $ 
 5,377 
 
 $ 
 4,309 
 
 $ 
 3,306 
 
 Gross increases – tax positions in current year

 2,582 
 
 2,025 
 
 1,512 
 
 Reductions due to lapse of statute of limitations

 ( 1,188 
 ) 
 
 ( 957 
 ) 
 
 ( 509 
 ) 
 
 Unrecognized tax benefits at end of period

 $ 
 6,771 
 
 $ 
 5,377 
 
 $ 
 4,309 
 
 14.

 COMMITMENTS AND CONTINGENCIES :

 From time to time, the Company is involved in litigation arising out of its operations in the ordinary course of business. The Company maintains liability insurance, through self-insurance and third-party excess insurance, including product liability coverage, in amounts deemed adequate by management. 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 December 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.

 15.

 ACQUISITIONS: 

 All of the following acquisitions, unless otherwise noted, were considered business combinations accounted for under ASC 805 “Business Combinations.” Pro forma information is not included in accordance with ASC 805 since no acquisitions were considered material individually or in the aggregate.

 On December 4, 2023, the Company 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 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.

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 On May 2, 2022, the Company completed the acquisition of an additional 30 % equity interest in RTC Canada, resulting in an 80 % controlling interest in RTC Canada. The acquisition was accounted for as an acquisition achieved in stages under ASC 805, Business Combinations . The acquisition-date fair value of the previous 50 % equity interest was $ 50 million, resulting in a gain of $ 7.0 million included in the line item Other income (expense) on the Consolidated Statements of Income in the year ended December 31, 2022. The Company also recognized a reversal of deferred tax liabilities of $ 7.0 million and $ 0.6 million related to reclassification of the foreign currency translation adjustment related to the remeasurement of the Company’s previous equity method investment in RTC Canada.

 As of May 2, 2022, the Company established a noncontrolling interest related to the minority holders. The fair value of the 20 % noncontrolling interest in RTC Canada is estimated to be $ 17.8 million. The fair value of the noncontrolling interest was estimated using a combination of the income approach and a market approach. Since RTC Canada is a private company, the fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement as defined in ASC 820, Fair Value Measurement . The fair value estimates are based on: (i) a discount rate of 11 %; (ii) a terminal value based on a long-term sustainable growth rate of 3 %; (iii) financial multiples of companies in the same industry as RTC Canada; and (iv) adjustments because of the lack of control or lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest in RTC Canada.

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

 Cash

 $ 
 4,310 
 
 Accounts receivable

 19,072 
 
 Inventory

 56,255 
 
 Property and equipment, including real estate

 80,196 
 
 Floor plan notes payable

 ( 30,501 
 ) 
 
 Trade payables

 ( 19,978 
 ) 
 
 Customer deposits

 ( 1,980 
 ) 
 
 Accrued liabilities

 ( 7,875 
 ) 
 
 Notes payable

 ( 69,545 
 ) 
 
 Goodwill

 44,174 
 
 Franchise rights

 3,906 
 
 Other

 3,422 
 
 Equity investment in RTC Canada

 ( 37,309 
 ) 
 
 Noncontrolling interest

 ( 17,828 
 ) 
 
 Gain on equity method investment

 ( 6,958 
 ) 
 
 Total

 $ 
 19,361 
 
 The goodwill of $ 44.2 million for the RTC Canada acquisition is primarily attributable to the synergies expected to arise after obtaining a controlling interest in the entity.

 Prior to May 2, 2022, the Company accounted for its 50 % equity interest in RTC Canada as an equity-method investment. Subsequent to the Company’s acquisition of the additional 50% equity interest on May 2, 2022, operations of RTC Canada are included in the accompanying consolidated financial statements.

 16.

 SEGMENTS :

 The Company currently has one reportable business segment - the Truck Segment. The Truck Segment includes the Company’s operation of a nationwide network of commercial vehicle dealerships that provide an integrated one-stop source for the commercial vehicle needs of its customers, including retail sales of new and used commercial vehicles; aftermarket parts sales, service and collision center facilities; and financial services, including the financing of new and used commercial vehicle purchases, insurance products and truck leasing and rentals. The commercial vehicle dealerships are deemed a single reporting unit because they have similar economic characteristics. The Company’s chief operating decision maker considers the entire Truck Segment, not individual dealerships or departments within its dealerships, when making decisions about resources to be allocated to the segment and assessing its performance.

 The Company also has revenues attributable to three other operating segments. These segments include a retail tire company, an insurance agency and a guest ranch operation and are included in the All Other column below. None of these segments has ever met any of the quantitative thresholds for determining reportable segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating income.

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 There were no material intersegment sales during the years ended December 31, 2023, 2022 or 2021.

 The following table contains summarized information about reportable segment revenue, segment income or loss from continuing operations and segment assets for the periods ended December 31, 2023, 2022 and 2021 (in thousands):

 Truck 

 All 

 Segment 

 Other 

 Totals 

 2023 

 Revenues from external customers

 $ 
 7,909,230 
 
 $ 
 15,794 
 
 $ 
 7,925,024 
 
 Interest income

 777 
 
 – 
 
 777 
 
 Interest expense

 53,694 
 
 – 
 
 53,694 
 
 Depreciation and amortization

 59,373 
 
 457 
 
 59,830 
 
 Segment operating income

 512,375 
 
 6 
 
 512,381 
 
 Segment income from continuing operations before taxes

 462,055 
 
 6 
 
 462,061 
 
 Segment assets

 4,308,264 
 
 55,977 
 
 4,364,241 
 
 Goodwill

 418,148 
 
 2,560 
 
 420,708 
 
 Expenditures for segment assets

 367,942 
 
 939 
 
 368,881 
 
 2022 
 
 Revenues from external customers

 $ 
 7,084,847 
 
 $ 
 16,821 
 
 $ 
 7,101,668 
 
 Interest income

 639 
 
 – 
 
 639 
 
 Interest expense

 19,763 
 
 – 
 
 19,763 
 
 Depreciation and amortization

 55,354 
 
 311 
 
 55,665 
 
 Segment operating income

 505,415 
 
 698 
 
 506,113 
 
 Segment income from continuing operations before taxes

 508,629 
 
 698 
 
 509,327 
 
 Segment assets

 3,769,007 
 
 52,059 
 
 3,821,066 
 
 Goodwill

 413,803 
 
 2,560 
 
 416,363 
 
 Expenditures for segment assets

 242,503 
 
 557 
 
 243,060 
 
 2021 
 
 Revenues from external customers

 $ 
 5,109,070 
 
 $ 
 17,072 
 
 $ 
 5,126,142 
 
 Interest income

 657 
 
 – 
 
 657 
 
 Interest expense

 2,119 
 
 308 
 
 2,427 
 
 Depreciation and amortization

 53,096 
 
 258 
 
 53,354 
 
 Segment operating income

 307,394 
 
 1,642 
 
 309,036 
 
 Segment income from continuing operations before taxes

 312,350 
 
 1,333 
 
 313,683 
 
 Segment assets

 3,068,365 
 
 51,612 
 
 3,119,977 
 
 Goodwill

 367,771 
 
 2,560 
 
 370,331 
 
 Expenditures for segment assets

 163,624 
 
 3,553 
 
 167,177 
 
 17.

 REVENUE :

 The Company’s revenues are primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue from such sales is recognized when the customer obtains control, which is typically when the finished product is delivered to the customer. The Company’s material revenue streams have been identified as the following: the sale of new and used commercial vehicles, arrangement of associated commercial vehicle financing and insurance contracts, the performance of commercial vehicle repair services and the sale of commercial vehicle parts. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.

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 The following table summarizes the Company’s disaggregated revenue by revenue source, excluding lease and rental revenue, for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 (in thousands):

 2023

 2022

 2021

 Commercial vehicle sales revenue

 $ 
 4,957,969 
 
 $ 
 4,351,370 
 
 $ 
 3,039,953 
 
 Parts revenue

 1,493,903 
 
 1,436,981 
 
 1,059,382 
 
 Commercial vehicle repair service revenue

 1,068,238 
 
 935,458 
 
 733,981 
 
 Finance revenue

 11,665 
 
 16,992 
 
 16,385 
 
 Insurance revenue

 12,606 
 
 12,749 
 
 11,579 
 
 Other revenue

 26,863 
 
 25,863 
 
 17,628 
 
 Total

 $ 
 7,571,244 
 
 $ 
 6,779,413 
 
 $ 
 4,878,908 
 
 All of the Company's performance obligations are generally transferred to customers at a point in time. The Company did not have any material contract assets or contract liabilities on the balance sheet as of December 31, 2023, or December 31, 2022. Revenues related to commercial vehicle sales, parts sales, commercial vehicle repair service, finance and the majority of other revenues are related to the Truck Segment.

 For the sale of new and used commercial vehicles, revenue is recognized at a point in time when control is transferred to the customer, which is when delivery of the commercial vehicle occurs. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the commercial vehicle. When control is transferred to the customer, the Company has an unconditional right to payment and a receivable is recorded for any consideration not received.

 The Company controls the commercial vehicle before it is transferred to the customer and it obtains all of the remaining benefits from the commercial vehicle relating to the sale, ability to pledge the asset or hold the asset. The Company is a principal in all commercial vehicle transactions. The Company retains inventory risk, determines the selling price to the customer and delivers the commercial vehicle to the customer. The Company generally pays a commission to internal sales representatives for the sale of a commercial vehicle. The Company will continue to expense the commission and recognize it concurrently with the respective commercial vehicle sale revenue upon delivery of the commercial vehicle to a customer.

 Revenue from the sale of parts is recognized when the Company transfers control of the goods to the customer and consideration has been received in the form of cash or a receivable from the customer. The Company provides its customers the right to return certain eligible parts, estimates the expected returns based on an analysis of historical experience and records an allowance for estimated returns, which has historically not been material.

 Revenue from the sale of commercial vehicle repair service is recognized when the service performed by the Company on a customer’s vehicle is complete and the customer accepts the repair. Because the Company does not have an enforceable right to payment while the repair is being performed, revenue is recognized when the repair is complete. After a customer’s acceptance, the Company has no remaining obligations to transfer goods or services to the customer and consideration has been received in the form of cash or a receivable from the customer.

 Any remaining performance obligations represent service orders for which work has not been completed. The Company’s service contracts are predominantly short-term in nature with a contract term of one month or less. For those contracts, the Company has utilized the practical expedient in Topic 606 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

 The Company receives commissions from third-party lenders for arranging customer financing for the purchase of commercial vehicles. The receipt of such commissions is deemed to be a single performance obligation that is satisfied when a financing agreement is executed and accepted by the financing provider. Once the contract has been accepted by the financing provider, the Company’s performance obligation has been satisfied and the Company generally has no further obligations under the contract. The Company is the agent in this transaction, as it does not have control over the acceptance of the customer’s financing arrangement by the financing provider. Consideration paid to the Company by the financing provider is based on the agreement between the Company and the financing provider.

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 The Company receives commissions from third-party insurance companies for arranging insurance coverage for customers. The receipt of such commissions is deemed to be a single performance obligation that is satisfied when the insurance coverage is bound. The Company has no further obligations under the contract. The Company is the agent in this transaction because it does not have control over the insurance coverage provided by the insurance carrier. Consideration paid to the Company by the insurance provider is based on the agreement between the Company and the insurance provider.

 The Company records revenues from finance and insurance products at the net commission amount, which includes estimates of chargebacks that can occur if the underlying contract is not fulfilled. Chargeback amounts for commissions from financing companies are estimated assuming financing contracts are terminated before the customer has made six monthly payments. Chargeback amounts for commissions from insurance companies are estimated assuming insurance contracts are terminated before the underlying insurance contractual term has expired. Chargeback reserve amounts are based on historical chargebacks and have historically been immaterial. The Company does not have any right to retrospective commissions based on future profitability of finance and insurance contracts arranged.

 Other revenue consists mostly of documentation fees that are charged to customers in connection with the sale of a commercial vehicle and recognized as other revenue when a truck is sold. The Company recognizes the documentation fees at the point in time when the commercial vehicle is delivered to the customer.

 18.

 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) :

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

 Balance as of December 31, 2021

 $ 
 787 
 
 Reclassification of currency translation related to equity

 ( 601 
 ) 
 
 Foreign currency translation adjustment

 ( 4,316 
 ) 
 
 Balance as of December 31, 2022

 ( 4,130 
 ) 
 
 Foreign currency translation adjustment

 1,967 
 
 Balance as of December 31, 2023

 $ 
 ( 2,163 
 ) 
 
 The functional currency of the Company’s foreign subsidiary, RTC Canada, is its local currency. Results of operations of RTC Canada are translated in USD using the average exchange rates on a monthly basis during the year. 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 and the statement of comprehensive income.

 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. 

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 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 

 None.
RUSH ENTERPRISES INC \TX\ 10-K

Item 8. Financial Statements and Supplementary Data
