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RUSH ENTERPRISES, INC.

(RUSHB)
  Report
Delayed Nasdaq  -  04:00 2022-09-28 pm EDT
48.69 USD   +3.24%
08/11RUSH ENTERPRISES, INC. : Ex-dividend day for
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08/09RUSH ENTERPRISES INC TX Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)
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07/28Credit Suisse Adjusts Rush Enterprises' Price Target to $61 from $59, Keeps Neutral Rating
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RUSH ENTERPRISES INC TX Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/09/2022 | 03:23pm EDT
Certain statements contained in this Form 10-Q (or otherwise made by the Company
or on the Company's behalf from time to time in other reports, filings with the
Securities and Exchange Commission ("SEC"), news releases, conferences, website
postings or otherwise) that are not statements of historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Exchange Act of 1934, as
amended (the "Exchange Act"), notwithstanding that such statements are not
specifically identified. Forward-looking statements include statements about the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, as well as statements regarding
the effects COVID-19 may have on our business and financial results. These
forward-looking statements reflect the best judgments of the Company about the
future events and trends based on the beliefs of the Company's management as
well as assumptions made by and information currently available to the Company's
management. Use of the words "may," "should," "continue," "plan," "potential,"
"anticipate," "believe," "estimate," "expect" and "intend" and words or phrases
of similar import, as they relate to the Company or its subsidiaries or Company
management, are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements. Forward-looking statements
reflect our current view of the Company with respect to future events and are
subject to risks and uncertainties that could cause actual results to differ
materially from those in such statements. Please read Item 1A. "Risk Factors" in
the Company's Annual Report on Form 10-K for the year ended December 31, 2021,
for a discussion of certain of those risks. Other unknown or unpredictable
factors could also have a material adverse effect on future results. Although
the Company believes that its expectations are reasonable as of the date of this
Form 10-Q, it can give no assurance that such expectations will prove to be
correct. The Company does not intend to update or revise any forward-looking
statements unless securities laws require it to do so, and the Company
undertakes no obligation to publicly release any revisions to forward-looking
statements, whether because of new information, future events or otherwise.



The following comments should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Note Regarding Trademarks Commonly Used in the Company's Filings




Peterbilt® is a registered trademark of Peterbilt Motors Company. PACCAR® is a
registered trademark of PACCAR, Inc. PacLease® is a registered trademark of
PACCAR Leasing Corporation. Navistar® is a registered trademark of Navistar
International Corporation. International® is a registered trademark of Navistar
International Transportation Corp. Idealease is a registered trademark of
Idealease, Inc. aka Idealease of North America, Inc. Blue Bird® is a registered
trademark of Blue Bird Investment Corporation. IC Bus® is a registered trademark
of IC Bus, LLC. Hino® is a registered trademark of Hino Motors, Ltd. Isuzu® is a
registered trademark of Isuzu Motors Limited. Ford Motor Credit Company® is a
registered trademark of Ford Motor Company. Ford® is a registered trademark of
Ford Motor Company. Cummins® is a registered trademark of Cummins, Inc. This
report contains additional trade names or trademarks of other companies. Our use
of such trade names or trademarks should not imply any endorsement or
relationship with such companies.



General



Rush Enterprises, Inc. was incorporated in Texas in 1965 and consists of one
reportable segment, the Truck Segment, and conducts business through its
subsidiaries. Our principal offices are located at 555 IH 35 South, Suite 500,
New Braunfels, Texas 78130.



We are a full-service, integrated retailer of commercial vehicles and related
services. The Truck Segment includes our operation of a network of commercial
vehicle dealerships under the name "Rush Truck Centers." Rush Truck Centers
primarily sell commercial vehicles manufactured by Peterbilt, International,
Hino, Ford, Isuzu, IC Bus and Blue Bird. Through our strategically located
network of Rush Truck Centers, we provide one-stop service for the needs of our
commercial vehicle customers, including retail sales of new and used commercial
vehicles, aftermarket parts sales, service and repair facilities, financing,
leasing and rental, and insurance products.



Our Rush Truck Centers are principally located in high traffic areas throughout
the United States and Ontario, Canada.  Since commencing operations as a
Peterbilt heavy-duty truck dealer in 1966, we have grown to operate over 125
franchised Rush Truck Centers in 23 states.  In 2019, we purchased a 50% equity
interest in an entity in Canada, Rush Truck Centres of Canada Limited ("RTC
Canada") and on May 2, 2022, we purchased an additional 30% equity interest in
RTC Canada that increased our equity interest to 80%.  RTC Canada currently owns
and operates 15 International dealership locations in Ontario.  Prior to
acquiring the additional 30%, we accounted for the equity interest in RTC Canada
using the equity method of accounting.  Now, the operating results of RTC Canada
are consolidated in the Consolidated Statements of Operations, the Statements of
Comprehensive Income, the Consolidated Balance Sheets and commercial vehicle
unit sales data as of May 2, 2022.



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



The COVID-19 Pandemic and Its Impact on Our Business




While business conditions have improved significantly since the onset of the
Covid-19 pandemic in the second quarter of 2020, our industry continues to be
impacted by supply chain issues generally believed to be attributable to the
COVID-19 pandemic that are negatively affecting new commercial vehicle
production and the availability of aftermarket parts.



Outlook



A.C.T. Research Co., LLC ("A. C.T. Research"), a commercial vehicle industry
data and forecasting service provider, currently forecasts new U.S. Class 8
retail truck sales to be 253,100 units in 2022, which would represent an 11.3%
increase compared to 2021. We expect our U.S. market share of new Class 8 truck
sales to range between 6.1% and 6.4% in 2022. This market share percentage would
result in the sale of approximately 15,500 to 16,200 new Class 8 trucks in 2022.
We expect to sell approximately 350 to 380 additional new Class 8 trucks in
Canada in the third and fourth quarters of 2022.



With respect to new U.S. Class 4-7 retail commercial vehicle sales, A.C.T.
Research currently forecasts sales to be 230,500 units in 2022, which would
represent a 7.7% decrease compared to 2021.  We expect our U.S. market share of
new Class 4 through 7 commercial vehicle sales to range between 4.6% and 4.8% in
2022. This market share percentage would result in the sale of approximately
10,500 to 11,000 new Class 4 through 7 commercial vehicles in 2022. We expect to
sell approximately 120 to 130 additional new Class 5 through 7 commercial
vehicles in Canada in the third and fourth quarters of 2022.



We expect to sell approximately 1,700 light-duty vehicles and approximately 7,000 to 7,500 used commercial vehicles in 2022. We expect lease and rental revenue to increase 28% to 32% during 2022, compared to 2021.

We believe our Aftermarket Products and Services revenues will increase 25% to 30% in 2022, compared to 2021.




The above projections for new commercial vehicle sales will depend on our
ability to obtain commercial vehicles from the manufacturers we represent and
such projections could be negatively impacted by manufacturer allocation
decisions and supply chain issues affecting manufacturers' production.  In
addition, we are monitoring inflation and rising interest rates, which may
negatively impact consumer spending and capital expenditures across a variety of
industries we support.



All of the above projections for new commercial vehicle sales, lease and rental
revenues and Aftermarket Products and Services revenues include the dealership
and Idealease locations that we acquired on December 13, 2021, when we completed
the acquisition of certain of the assets of the of Summit Truck Group, LLC and
certain of its subsidiaries and affiliates (collectively, "Summit"). In
addition, all of the above projections for new commercial vehicle sales, lease
and rental revenues and Aftermarket Products and Services revenues include RTC
Canada.


Critical Accounting Policies and Estimates




Our discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. There can be no assurance
that actual results will not differ from those estimates. We believe the
following accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.



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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 our inventory typically declines over time,
reserves are established based on historical loss experience and market trends.
These reserves are charged to cost of sales and reduce the carrying value of our
inventory on hand. An allowance is provided when it is anticipated that cost
will exceed net realizable value less a reasonable profit margin.



Purchase Price Allocation, Intangible Assets and Goodwill




Purchase price allocation for business combinations and asset acquisitions
requires the use of accounting estimates and judgments to allocate the purchase
price to the identifiable tangible and intangible assets acquired and
liabilities assumed based on their respective fair values. We determine whether
substantially all the fair value of the gross assets acquired is concentrated in
a single identifiable asset or a group of similar identifiable assets. If so,
the single asset or group of assets, as applicable, is not a business. If not,
we determine whether the single asset or group of assets, as applicable, meets
the definition of a business.



In connection with our business combinations, we recorded certain intangible
assets, including franchise rights. We periodically review the estimated useful
lives and fair values of our identifiable intangible assets, taking into
consideration any events or circumstances that might result in a diminished fair
value or revised useful life.



The excess purchase price over the fair value of assets acquired is recorded as
goodwill. We test goodwill for impairment annually in the fourth quarter, or
whenever events or changes in circumstances indicate an impairment may have
occurred. Because we operate a single reporting unit, the Truck Segment, the
impairment test is performed at that level by comparing the estimated fair value
of the reporting unit to the carrying value of the reporting unit. We estimate
the fair value of the reporting unit using a "step one" analysis utilizing a
fair-value-based approach that uses a discounted cash flow analysis of projected
future results to determine if it is more likely than not that the fair value of
a reporting unit is less than its carrying amount. Determining the fair value of
goodwill is subjective in nature and often involves the use of estimates and
assumptions including, without limitation, use of estimates of future prices and
volumes for our products, capital needs, economic trends and other factors which
are inherently difficult to forecast. If actual results, or the plans and
estimates used in future impairment analyses are lower than the original
estimates used to assess the recoverability of these assets, we could incur
impairment charges in a future period. The annual impairment test was performed
in the fourth quarter of 2021. No impairment of goodwill was identified during
2021 and no circumstances or events occurred in the first six months of 2022
that would require a test for impairment.



Insurance Accruals



We are partially self-insured for a portion of the claims related to our
property and casualty insurance programs, which requires us to make estimates
regarding expected losses to be incurred. We engage a third-party administrator
to assess any open claims and we adjust our accrual accordingly on a periodic
basis. We are also partially self-insured for a portion of the claims related to
our workers' compensation and medical insurance programs. We use actuarial
information provided from third-party administrators to calculate an accrual for
claims incurred, but not reported, and for the remaining portion of claims that
have been reported.



Changes in the frequency, severity and development of existing claims could
influence our reserve for claims and financial position, results of operations
and cash flows. We do not believe there is a reasonable likelihood that there
will be a material change in the estimates or assumptions we used to calculate
our self-insured liabilities. However, if actual results are not consistent with
our estimates or assumptions, we may be exposed to losses or gains that could be
material.



Accounting for Income Taxes



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



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



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



Revenue Recognition



We recognize revenue when our customer obtains control of promised goods or
services, in an amount that reflects the consideration which we expect to
receive in exchange for those goods or services. To determine revenue
recognition for arrangements that we determine are within the scope of ASU
2014-09, "Revenue from Contracts with Customers ("Topic 606"), we perform the
following five steps: (i) identify the contract with a customer; (ii) identify
the performance obligations in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the performance obligations in the
contract; and (v) recognize revenue when (or as) we satisfy a performance
obligation. We only apply the five-step model to contracts when it is probable
that we will collect the consideration we are entitled to in exchange for the
goods or services we transfer to the customer. At contract inception, once the
contract is determined to be within the scope of Topic 606, we assess the goods
or services promised within each contract and determine those that are
performance obligations. We then assess whether each promised good or service is
distinct and recognize as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) the performance
obligation is satisfied.



Leases



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



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



We lease commercial vehicles that we own to customers. Lease and rental revenue
is recognized over the period of the related lease or rental agreement. Variable
rental revenue is recognized when it is earned.



Allowance for Credit Losses



All trade receivables are reported on the consolidated balance sheet at their
cost basis adjusted for any write-offs and net of allowances for credit losses.
We maintain allowances for credit losses, which represent an estimate of
expected losses over the remaining contractual life of our receivables after
considering current market conditions and estimates for supportable forecasts,
when appropriate. The estimate is a result of our ongoing assessments and
evaluations of collectability, historical loss experience, and future
expectations in estimating credit losses in each of our receivable portfolios
(commercial vehicle receivables, manufacturers' receivables, parts and service
receivables, leasing receivables and other trade receivables). For trade
receivables, we use the probability of default and our historical loss
experience rates by portfolio and apply them to a related aging analysis while
also considering customer and economic risk where appropriate. Determination of
the proper amount of allowances by portfolio requires us to exercise our
judgment about the timing, frequency and severity of credit losses that could
materially affect the provision for credit losses and, as a result, net
earnings. The allowances take into consideration numerous quantitative and
qualitative factors that include receivable type, historical loss experience,
collection experience, current economic conditions, estimates for supportable
forecasts (when appropriate) and credit risk characteristics.



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Foreign Currency Transactions




The functional currency of our foreign subsidiary, RTC Canada, is its local
currency.  Results of operations for RTC Canada are translated in USD using the
average exchange rate on a monthly basis during the quarter. The assets and
liabilities of RTC Canada are translated into USD using the exchange rate in
effect on the balance sheet date. The related translation adjustments are
recorded as a separate component of our Consolidated Statements of Shareholders'
Equity in the line item Accumulated other comprehensive income.



Results of Operations


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

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



                                          Three Months Ended               Six Months Ended
                                               June 30,                        June 30,
                                         2022             2021           2022            2021
Revenue
New and used commercial vehicle
sales                                        61.3 %          60.6 %          60.6 %         60.6 %
Aftermarket products and services
sales                                        33.4            33.8            34.0           33.8
Lease and rental sales                        4.5             4.7             4.5            4.7
Finance and insurance                         0.4             0.6             0.5            0.6
Other                                         0.4             0.3             0.4            0.3
Total revenues                              100.0           100.0           100.0          100.0
Cost of products sold                        79.1            79.4            78.5           79.8
Gross profit                                 20.9            20.6            21.5           20.2
Selling, general and administrative          12.6            14.0            13.4           14.1
Depreciation and amortization                 0.8             1.0             0.8            1.1
Gain (loss) on sale of assets                 0.0             0.0             0.0            0.0
Operating income                              7.5             5.6             7.3            5.0
Other income                                  0.5             0.0             0.7            0.1
Interest (income) expense, net                0.2             0.0             0.2            0.0
Income before income taxes                    7.8             5.6             7.8            5.1
Provision for income taxes                    1.7             1.2             1.7            1.1
Net income                                    6.1             4.4             6.1            4.0
Less: Net income attributable to
noncontrolling interest                       0.0             0.0             0.0            0.0
Net income attributable to Rush
Enterprises, Inc.                             6.1 %           4.4 %           6.1 %          4.0 %




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



                                            Three Months Ended          Six Months Ended
                                                 June 30,                   June 30,
                                             2022          2021         2022         2021
Gross Profit:
New and used commercial vehicle sales           27.8  %      28.6 %        28.4 %      28.7 %
Aftermarket products and services sales         61.7         62.2          61.2        62.5
Lease and rental sales                           6.7          4.8           6.7         4.5
Finance and insurance                            2.1          2.8           2.1         2.7
Other                                            1.7          1.6           1.6         1.6
Total gross profit                             100.0  %     100.0 %       100.0 %     100.0 %




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



                          Three Months Ended                            Six Months Ended
                               June 30,                                     June 30,
                                                 %                                             %
                  2022           2021          Change          2022           2021          Change
Vehicle unit
sales:
New
heavy-duty
vehicles            4,168          2,954           41.1 %        7,696          5,949            29.4 %
New
medium-duty
vehicles            2,815          2,825           -0.4 %        4,956          5,159            -3.9 %
New
light-duty
vehicles              408            472          -13.6 %          889            867             2.5 %
Total new
vehicle unit
sales               7,391          6,251           18.2 %       13,541         11,975            13.1 %
Used
vehicles            1,629          2,094          -22.2 %        4,024          4,018             0.1 %
Vehicle
revenue:
New
heavy-duty
vehicles       $    691.2     $    434.9           58.9 %   $  1,237.4     $    884.9            39.8 %
New
medium-duty
vehicles            240.3          226.2            6.2 %        418.3          414.4             0.9 %
New
light-duty
vehicles             20.2           21.4           -5.7 %         44.0           39.8            10.5 %
Total new
vehicle
revenue        $    951.7     $    682.5           39.4 %   $  1,699.7     $  1,339.1            26.9 %
Used vehicle
revenue        $    142.5     $    112.6           26.6 %   $    328.1     $    200.9            63.3 %
Other
vehicle
revenue:(1)    $      4.1     $      2.2           87.7 %   $      6.2     $      5.0            24.9 %
Dealership
absorption
ratio:              136.4 %        129.1 %          5.7 %        136.8 %        125.9 %           8.7 %




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




Key Performance Indicator



Absorption Ratio



Management uses several performance metrics to evaluate the performance of our
commercial vehicle dealerships and considers Rush Truck Centers' "absorption
ratio" to be of critical importance. Absorption ratio is calculated by dividing
the gross profit from our Aftermarket Products and Services departments by the
overhead expenses of all of a dealership's departments, except for the selling
expenses of the new and used commercial vehicle departments and carrying costs
of new and used commercial vehicle inventory. When 100% absorption is achieved,
all of the gross profit from the sale of a commercial vehicle, after sales
commissions and inventory carrying costs, directly impacts operating profit. Our
commercial vehicle dealerships achieved a 136.4% absorption ratio for the second
quarter of 2022 and a 129.1% absorption ratio for the second quarter of 2021.



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




Revenues



Total revenues increased $475.2 million, or 36.1%, in the second quarter of
2022, compared to the second quarter of 2021.  This increase was primarily the
result of strong freight demand which continues to drive strong demand for new
and used commercial vehicles, the Summit acquisition and the consolidation of
RTC Canada into our operating results, which increased revenues across all areas
of our business.



Our Aftermarket Products and Services revenues increased $152.8 million, or
34.3%, in the second quarter of 2022, compared to the second quarter of 2021.
The increase in Aftermarket Parts and Services revenues was primarily a result
of strong demand, in addition to the Summit acquisition and the consolidation of
RTC Canada into our operating results.



Revenues from sales of new and used commercial vehicles increased
$301.0 million, or 37.8%, in the second quarter of 2022, compared to the second
quarter of 2021. The increase in commercial vehicle revenues was primarily a
result of strong demand, in addition to the Summit acquisition and the
consolidation of RTC Canada into our operating results.



We sold 4,168 new Class 8 trucks in the second quarter of 2022, a 41.1% increase
compared to 2,954 new Class 8 trucks in the second quarter of 2021.  This
increase in new Class 8 truck sales was primarily a result of strong demand for
new commercial vehicles and the Summit acquisition and the consolidation of RTC
Canada into our operating results.



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We sold 2,815 new Class 4 through 7 commercial vehicles, including 279 buses, in
the second quarter of 2022, a 0.4% decrease compared to 2,825 new medium-duty
commercial vehicles, including 230 buses, in the second quarter of 2021. Our new
Class 4 through 7 commercial vehicle sales were negatively impacted by new
commercial vehicle production constraints that affected the manufacturers we
represent.


We sold 408 light-duty vehicles in the second quarter of 2022, a 13.6% decrease compared to 472 light-duty vehicles sold in the second quarter of 2021.




We sold 1,629 used commercial vehicles in the second quarter of 2022, a 22.2%
decrease compared to 2,094 used commercial vehicles sold in the second quarter
of 2021.  We believe used commercial vehicle demand and values will decrease as
new commercial vehicle production increases to a level adequate to meet customer
demand; however, we believe demand for used trucks will remain strong throughout
2022.



Commercial vehicle lease and rental revenues increased $19.1 million, or 31.2%,
in the second quarter of 2022, compared to the second quarter of 2021.  This
increase in commercial vehicle lease and rental revenues was primarily a result
of strong demand for rental commercial vehicles, the Summit acquisition and the
consolidation of RTC Canada into our operating results.



Finance and insurance revenues increased $0.3 million, or 4.7%, in the second
quarter of 2022, compared to the second quarter of 2021.  The increase in
finance and insurance revenues was primarily due to sales of finance and
insurance products to a higher percentage of new and used commercial vehicle
purchasers in the second quarter of 2022. Finance and insurance revenues have
limited direct costs and, therefore, contribute a disproportionate share of our
operating profits.



Gross Profit



Gross profit increased $103.4 million, or 38.2%, in the second quarter of 2022,
compared to the second quarter of 2021.  This increase in gross profit is
primarily due to strong demand for commercial vehicles and aftermarket services,
the Summit acquisition and the consolidation of RTC Canada into our operating
results.  Gross profit as a percentage of sales increased to 20.9% in the second
quarter of 2022, from 20.6% in the second quarter of 2021.



Gross margins from our Aftermarket Products and Services operations increased to
38.6% in the second quarter of 2022, from 37.8% in the second quarter of 2021.
Gross profit from our Aftermarket Products and Services operations increased to
$231.0 million in the second quarter of 2022, from $168.4 million in the second
quarter of 2021.  This increase in gross profit from our Aftermarket Products
and Services operations is primarily due to increases in parts pricing,
increases in parts rebates from our parts suppliers, the Summit acquisition and
the consolidation of RTC Canada into our operating results.  Historically, gross
margins on parts sales range from 28% to 30% and gross margins on service and
collision center operations range from 66% to 68%. Gross profits from parts
sales represented 63.6% of total gross profit from Aftermarket Products and
Services operations in the second quarter of 2022 and 61.0% in the second
quarter of 2021. Service and collision center operations represented 36.4% of
total gross profit from Aftermarket Products and Services operations in the
second quarter of 2022 and 39.0% in the second quarter of 2021.  We expect
blended gross margins on Aftermarket Products and Services operations to range
from 38.0% to 39.0% in 2022.



Gross margins on new Class 8 truck sales increased to 9.9% in the second quarter
of 2022, from 9.1% in the second quarter of 2021. This increase is primarily due
to strong demand for new Class 8 trucks and the mix of purchasers during the
second quarter of 2022. In 2022, we expect overall gross margins from new
heavy-duty truck sales of approximately 8.8% to 9.8%.



Gross margins on new Class 4 through 7 commercial vehicle sales decreased to
7.3% in the second quarter of 2022, from 7.4% in the second quarter of 2021.
This decrease is primarily due to the mix of purchasers during the second
quarter of 2022. For 2022, we expect overall gross margins from new medium-duty
commercial vehicle sales of approximately 7.5% to 8.5%, but this will largely
depend upon the mix of purchasers and types of vehicles sold.



Gross margins on used commercial vehicle sales decreased to 10.6% in the second
quarter of 2022, from 17.4% in the second quarter of 2021. This decrease is
primarily due to a softening in used truck values as new Class 8 vehicle
production begins to increase. We expect margins on used commercial vehicles to
gradually decrease throughout 2022 as new commercial vehicle production
increases and reach their historical range between 8.0% and 10.0% by the end of
2022.



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Gross margins from truck lease and rental sales increased to 31.3% in the second
quarter of 2022, from 21.2% in the second quarter of 2021. This increase is
primarily related to increased rental fleet utilization and changes to the way
we finance commercial vehicles for our lease and rental fleet. In September of
2021, we entered into a credit agreement ("the WF Credit Agreement") with the
lenders signatory thereto (the "WF Lenders") and Wells Fargo Bank, National
Association ("WF"), as Administrative Agent (in such capacity, the "WF Agent")
that allows us to finance a portion of our Idealease lease and rental fleet
through a general borrowing facility. In October of 2021, we entered into that
certain Amended and Restated Inventory Financing and Purchase Money Security
Agreement with PLC, a division of PACCAR Financial Corp. (the "PLC Agreement")
in the amount of $300.0 million to be used in connection with the acquisition of
PacLease lease and rental fleet vehicles. The interest associated with the WF
Credit Agreement and the PLC Agreement is recorded in interest expense on the
Consolidated Statements of Income. Prior to the WF Credit Agreement and the PLC
Agreement, interest expense associated with our lease and rental fleet purchases
was recorded in cost of sales because each borrowing was directly related to
each lease and rental vehicle purchased. This change in the structure of
financing of our lease and rental fleet results in increased gross margins from
our commercial vehicle lease and rental sales. We expect gross margins from
lease and rental sales of approximately 31.0% to 33.0% during 2022. Our policy
is to depreciate our lease and rental fleet using a straight-line method over
each customer's contractual lease term. The lease unit is depreciated to a
residual value that approximates fair value at the expiration of the lease term.
This policy results in us realizing reasonable gross margins while the unit is
in service and a corresponding gain or loss on sale when the unit is sold at the
end of the lease term.


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

Selling, General and Administrative Expenses




Selling, General and Administrative ("SG&A") expenses increased $40.6 million,
or 22.0%, in the second quarter of 2022, compared to the second quarter of 2021.
This increase primarily resulted from increased general and administrative
expense associated with the Summit acquisition and consolidation of RTC Canada
into our operating results.  SG&A expenses as a percentage of total revenues
decreased to 12.6% in the second quarter of 2022, from 14.0% in the second
quarter of 2021.  Annual SG&A expenses as a percentage of total revenues have
ranged from approximately 12.4% to 14.3% over the last five years.  In general,
when new and used commercial vehicle revenues decrease as a percentage of total
revenues, SG&A expenses as a percentage of total revenues will be at the higher
end of this range.  For 2022, we expect SG&A expenses as a percentage of total
revenues to range from 13.0% to 14.0%, due to the increase in revenues from
sales of new and used commercial vehicles and Aftermarket Products and Services
revenues.  We expect the selling portion of SG&A expenses to be approximately
25.0% to 30.0% of new and used commercial vehicle gross profit.



Interest (Income) Expense, Net




Net interest (income) expense increased $3.4 million, or 1,594.3%, in the second
quarter of 2022, compared to the second quarter of 2021. This increase in
interest expense is a result of the increase in inventory levels and rising
interest rates on our variable rate debt compared to 2021. We expect net
interest expense in 2022 to increase due to interest related to lease and rental
borrowings, but the amount of the increase will depend on inventory levels,
interest rate fluctuations and the amount of cash available to make prepayments
on our floor plan arrangements.



Income before Income Taxes



As a result of the factors described above, income before income taxes increased
$65.4 million, or 87.5%, in the second quarter of 2022, compared to the second
quarter of 2021.



Income Taxes



Income taxes increased $12.8 million, or 76.7%, in the second quarter of 2022,
compared to the second quarter of 2021. We provided for taxes at a 21.1%
effective rate in the second quarter of 2022 and 22.3% in the second quarter of
2021. We expect our effective tax rate to be approximately 23.0% to 24.0% of
pretax income in 2022.



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




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



Total revenues increased $806.6 million, or 31.7%, in the first six months of
2022, compared to the first six months of 2021. Sales of new and used commercial
vehicles increased $489.0 million, or 31.6%, in the first six months of 2022,
compared to the first six months of 2021.



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




We sold 7,696 new Class 8 heavy-duty trucks in the first six months of 2022, a
29.4% increase compared to 5,949 new Class 8 heavy-duty trucks in the first six
months of 2021. According to A.C.T. Research, retail sales in the U.S. Class 8
truck market increased 1.0% in the first six months of 2022, compared to the
first six months of 2021.



We sold 4,956 new Class 4 through 7 medium-duty commercial vehicles, including
504 buses, in the first six months of 2022. This represented a 3.9% decrease
compared to 5,159 new Class 4 through 7 medium-duty commercial vehicles,
including 370 buses, in the first six months of 2021. A.C.T. Research estimates
that unit sales of new Class 4 through 7 commercial vehicles in the U.S.
decreased approximately 11.3% in the first six months of 2022, compared to the
first six months of 2021.


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




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


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

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



Gross Profit


Gross profit increased $204.1 million, or 39.6%, in the first six months of 2022, compared to the first six months of 2021. Gross profit as a percentage of sales was 21.5% in the first six months of 2022 and 20.2% in the first six months of 2021.




Gross margins from Aftermarket Products and Services operations increased to
38.5% in the first six months of 2022, from 37.4% in the first six months of
2021. Gross profit for Aftermarket Products and Services was $440.1 million in
the first six months of 2022, compared to $322.3 million in the first six months
of 2021. Gross profit from parts sales represented 63.1% of the total gross
profit for Aftermarket Products and Services operations in the first six months
of 2022 and 60.0% in the first six months of 2021. Service and collision center
operations represented 36.9% of the total gross profit for Aftermarket Products
and Services operations in the first six months of 2022 and 40.0% in the first
six months of 2021.


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

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

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

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

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

Selling, General and Administrative Expenses




SG&A expenses increased $90.1 million, or 25.0%, in the first six months of
2022, compared to the first six months of 2021. SG&A expenses equaled 13.4% of
total revenue in the first six months of 2022, compared to 14.1% in the first
six months of 2021.


Interest (Income) Expense, Net

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



Income before Income Taxes


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



Provision for Income Taxes



Income taxes increased $29.4 million, or 105.0%, in the first six months of
2022, compared to the first six months of 2021. We provided for taxes at a 22.0%
rate in the first six months of 2022 and a 21.3% rate in the first six months of
2021.


Liquidity and Capital Resources




Our short-term cash requirements are primarily for working capital, inventory
financing, the renovation and expansion of existing facilities and the
construction or purchase of new facilities. Historically, these cash
requirements have been met through the retention of profits, borrowings under
our floor plan arrangements and bank financings. As of June 30, 2022, we had
working capital of approximately $443.2 million, including $216.7 million in
cash, available to fund our operations. We believe that these funds, together
with expected cash flows from operations, are sufficient to meet our operating
requirements for at least the next twelve months. From time to time, we utilize
our excess cash on hand to pay down our outstanding borrowings under our floor
plan credit agreement with BMO Harris Bank N.A. ("BMO Harris") (the "Floor Plan
Credit Agreement") and the WF Credit Agreement. The resulting interest earned on
the Floor Plan Credit Agreement is recognized as an offset to our interest
expense.



We continually evaluate our liquidity and capital resources based upon: (i) our
cash and cash equivalents on hand; (ii) the funds that we expect to generate
through future operations; (iii) current and expected borrowing availability
under our secured line of credit, working capital lines of credit available
under certain of our credit agreements and our Floor Plan Credit Agreement; and
(iv) the potential impact of our capital allocation strategy and any
contemplated or pending future transactions, including, but not limited to,
acquisitions, equity repurchases, dividends, or other capital expenditures. We
believe we will have sufficient liquidity to meet our debt service and working
capital requirements, commitments and contingencies, debt repayments,
acquisitions, capital expenditures and any operating requirements for at least
the next twelve months.



We have a secured line of credit that provides for a maximum borrowing of $15.0
million. There were no advances outstanding under this secured line of credit on
June 30, 2022, however, $14.3 million was pledged to secure various letters of
credit related to self-insurance products, leaving $0.7 million available for
future borrowings as of June 30, 2022.



Our long-term debt, floor plan financing agreements and the WF Credit Agreement
require us to satisfy various financial ratios such as the leverage ratio, the
asset coverage ratio and the fixed charge coverage ratio. As of June 30, 2022,
we were in compliance with all debt covenants related to debt secured by lease
and rental units, our floor plan credit agreements and the WF Credit Agreement.
We do not anticipate any breach of the covenants in the foreseeable future.



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We expect to purchase or lease commercial vehicles worth approximately $150.0
million to $170.0 million for our leasing operations during 2022, depending on
customer demand, most of which will be financed. We also expect to make capital
expenditures for the purchase of recurring items such as computers, shop tools
and equipment and company vehicles of approximately $35.0 million to $40.0
million during 2022.



During the second quarter of 2022, we paid a cash dividend of $10.5 million.
Additionally, on July 26, 2022, our Board of Directors declared a cash dividend
of $0.21 per share of Class A and Class B Common Stock, to be paid on September
12, 2022, to all shareholders of record as of August 12, 2022. The total
dividend disbursement is estimated at approximately $11.6 million. We expect to
continue paying cash dividends on a quarterly basis. However, there is no
assurance as to future dividends because the declaration and payment of such
dividends is subject to the business judgment of our Board of Directors and will
depend on historic and projected earnings, capital requirements, covenant
compliance and financial conditions and such other factors as our Board of
Directors deem relevant.



On November 30, 2021, we announced that our Board of Directors approved a new
stock repurchase program authorizing management to repurchase, from time to
time, up to an aggregate of $100.0 million of our shares of Class A Common Stock
and/or Class B Common Stock.  In connection with the adoption of the new stock
repurchase plan, we terminated the prior stock repurchase plan, which was
scheduled to expire on December 31, 2021.  Repurchases, if any, will be made at
times and in amounts as we deem appropriate and may be made through open market
transactions at prevailing market prices, privately negotiated transactions or
by other means in accordance with federal securities laws. The actual timing,
number and value of repurchases under the stock repurchase program will be
determined by management at its discretion and will depend on a number of
factors, including market conditions, stock price and other factors, including
those related to the ownership requirements of our dealership agreements with
Peterbilt.  As of June 30, 2022, we had repurchased $58.7 million of our shares
of common stock under the current stock repurchase program.  The current stock
repurchase program expires on December 31, 2022, and may be suspended or
discontinued at any time.



We anticipate funding the capital expenditures for the improvement and expansion
of existing facilities and recurring expenses through our operating cash flows.
We have the ability to fund the construction or purchase of new facilities
through our operating cash flows or by financing.



We have no other material commitments for capital expenditures as of June 30,
2022. However, we will continue to purchase vehicles for our lease and rental
operations and authorize capital expenditures for the improvement or expansion
of our existing dealership facilities and construction or purchase of new
facilities based on market opportunities.



Cash Flows



Cash and cash equivalents increased by $68.5 million during the six months ended
June 30, 2022 and increased by $3.9 million during the six months ended June 30,
2021. The major components of these changes are discussed below.



Cash Flows from Operating Activities




Cash flows from operating activities include net income adjusted for non-cash
items and the effects of changes in working capital. During the first six months
of 2022, operating activities resulted in net cash provided by operations of
$58.2 million. Net cash provided by operating activities primarily consisted of
$202.7 million in net income, as well as non-cash adjustments related to
depreciation and amortization of $95.1 million, stock-based compensation of
$18.0 million and the benefit for deferred income tax expense of $4.1 million.
Cash provided by operating activities included an aggregate of $236.9 million
net change in operating assets and liabilities. Included in the net change in
operating assets and liabilities were cash inflows of $33.3 million from the
increase in accounts payable and $18.6 million from the increase in accrued
liabilities, which was offset by cash outflows of $85.1 million from the
increase in accounts receivable, $193.0 million from the increase in
inventories, $1.9 million from the increase in other assets, and $8.8 million
from the decrease in customer deposits. The majority of our commercial vehicle
inventory is financed through our floor plan credit agreements.



During the first six months of 2021, operating activities resulted in net cash
provided by operations of $237.7 million. Net cash provided by operating
activities primarily consisted of $103.4 million in net income, as well as
non-cash adjustments related to depreciation and amortization of $84.9 million,
stock-based compensation of $15.2 million and the benefit for deferred income
tax expense of $14.6 million. Cash provided by operating activities included an
aggregate of $50.0 million net change in operating assets and liabilities.
Included in the net change in operating assets and liabilities were cash inflows
of $76.8 million from the decrease in inventories, $12.0 million from the
decrease in accounts receivable and $12.4 million from the increase in accounts
payable, which was offset by cash outflows of $1.3 million from the increase in
other assets, $26.2 million from the decrease in accrued liabilities and $23.7
million from the decrease in customer deposits.



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Cash Flows from Investing Activities




During the first six months of 2022, cash used in investing activities was $94.2
million.  Cash flows used in investing activities consist primarily of cash used
for capital expenditures and the purchase of the additional 30% equity interest
in RTC Canada.  Capital expenditures were $107.2 million during the first six
months of 2021 and consisted primarily of purchases of property and equipment
and improvements to our existing dealership facilities.  Property and equipment
purchases during the first six months of 2021 included $71.4 million for
additional units for the rental and leasing operations, the majority of which
were directly offset by borrowings of long-term debt.  Additionally, during the
first six months of 2022, cash outflows consisted of $15.1 million related to
the acquisition of the additional 30% equity interest in RTC Canada.  The cash
outflows were offset by the cash inflow of $27.5 million related to Cummins,
Inc.'s acquisition of a 50% equity interest in Momentum Fuel Technologies.



During the first six months of 2021, cash used in investing activities was $82.9
million.  Cash flows used in investing activities consisted primarily of cash
used for capital expenditures.  Capital expenditures were $84.4 million during
the first six months of 2021 and consisted primarily of purchases of property
and equipment and improvements to our existing dealership facilities.  Property
and equipment purchases during the first six months of 2021 included $64.7
million for additional units for the rental and leasing operations, the majority
of which were directly offset by borrowings of long-term debt.



Cash Flows from Financing Activities




Cash flows from financing activities include borrowings and repayments of
long-term debt and net proceeds of floor plan notes payable, non-trade. During
the first six months of 2022, financing activities resulted in net cash used in
financing of $104.6 million, primarily related to cash inflows of $8.1 million
from the issuance of shares related to equity compensation plans, $190.5 million
from net draws on floor plan notes payable, non-trade and borrowings of $571.3
million of long-term debt. These cash inflows were offset by $582.3 million used
for principal repayments of long-term debt and capital lease obligations, $8.6
million for taxes related to net share settlement of equity awards, $52.8
million used for repurchases of common stock and $21.6 million used for payment
of cash dividends. The borrowings of long-term debt were primarily related to
purchasing units for the rental and leasing operations.



During the first six months of 2021, financing activities resulted in net cash
used in financing of $151.0 million, primarily related to cash inflows of $3.9
million from the issuance of shares related to equity compensation plans and
borrowings of $52.3 million of long-term debt. These cash inflows were offset by
$40.9 million from net payments on floor plan notes payable, non-trade, $135.6
million used for principal repayments of long-term debt and capital lease
obligations, $10.8 million used for repurchases of common stock and $19.9
million used for payment of cash dividends. The borrowings of long-term debt
were primarily related to purchasing units for the rental and leasing
operations.



On September 14, 2021, we entered into the WF Credit Agreement with the WF
Lenders and the WF Agent. Pursuant to the terms of the WF Credit Agreement, the
WF Lenders have agreed to make up to $250.0 million of revolving credit loans
for certain of our capital expenditures, including commercial vehicle purchases
for our Idealease leasing and rental fleet, and general working capital needs.
We expect to use the revolving credit loans available under the WF Credit
Agreement primarily for the purpose of purchasing commercial vehicles for our
Idealease lease and rental fleet. We may borrow, repay and reborrow amounts
pursuant to the WF Credit Agreement from time to time until the maturity date.
Borrowings under the WF Credit Agreement bear interest per annum, payable on
each interest payment date, as defined in the WF Credit Agreement, at (A) the
daily SOFR rate plus (i) 1.25% or (ii) 1.5%, depending on our consolidated
leverage ratio or (B) on or after the term SOFR transition date, the term SOFR
rate plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio.
The WF Credit Agreement expires on September 14, 2024, although, upon the
occurrence and during the continuance of an event of default, the WF Agent has
the right to, or upon the request of the required lenders must, terminate the
commitments and declare all outstanding principal and interest due and payable.
We may terminate the commitments at any time. On June 30, 2022, we had
approximately $150.1 million outstanding under the WF Credit Agreement.



On October 1, 2021, we entered into the PLC Agreement. Pursuant to the terms of
the PLC Agreement, PLC agreed to make up to $300.0 million of revolving credit
loans to finance certain of our capital expenditures, including commercial
vehicle purchases and other equipment to be leased or rented through our
PacLease franchises. We may borrow, repay and reborrow amounts pursuant to the
PLC Agreement from time to time until the maturity date, provided, however, that
the outstanding principal amount on any date shall not exceed the borrowing
base. Advances under the PLC Agreement bear interest per annum, payable on the
fifth day of the following month, at our option, at either (A) the prime rate,
minus 1.55%, provided that the floating rate of interest is subject to a floor
of 0%, or (B) a fixed rate, to be determined between us and PLC in each instance
of borrowing at a fixed rate. The PLC Agreement expires on October 1, 2025,
although either party has the right to terminate the PLC Agreement at any time
upon 180 days written notice. If we terminate the PLC Agreement prior to October
1, 2025, then all payments will be deemed to be voluntary prepayments subject to
a potential prepayment premium. On June 30, 2022, we had approximately $185.0
million outstanding under the PLC Agreement.



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Most of our commercial vehicle purchases are made on terms requiring payment to
the manufacturer within 15 days or less from the date the commercial vehicles
are invoiced from the factory. On September 14, 2021, we entered into Floor Plan
Credit Agreement with BMO Harris and the lenders signatory thereto. Prior to the
Floor Plan Credit Agreement, we financed the majority of all new commercial
vehicle inventory and the loan value of our used commercial vehicle inventory
under the Fourth Amended and Restated Floor Plan Credit Agreement with BMO
Harris and the majority of such financings will continue to occur under the
Floor Plan Credit Agreement. The Floor Plan Credit Agreement includes an
aggregate loan commitment of $1.0 billion. Borrowings under the Floor Plan
Credit Agreement bear interest at an annual rate equal to (A) the greater of (i)
zero and (ii) one month LIBOR rate, determined on the last day of the prior
month, plus (B) 1.10% and are payable monthly. Loans under the Floor Plan Credit
Agreement for the purchase of used inventory are limited to $150.0 million and
loans for working capital purposes are limited to $200.0 million. The Floor Plan
Credit Agreement expires September 14, 2026, although BMO Harris has the right
to terminate at any time upon 360 days written notice and we may terminate at
any time, subject to specified limited exceptions. On June 30, 2022, we had
approximately $724.1 million outstanding under the Floor Plan Credit Agreement.
The average daily outstanding borrowings under the Floor Plan Credit Agreement
were $574.6 million during the three months ended June 30, 2022. We utilize our
excess cash on hand to pay down our outstanding borrowings under the Floor Plan
Credit Agreement, and the resulting interest earned is recognized as an offset
to our gross interest expense under the Floor Plan Credit Agreement.



On May 31, 2022, RTC Canada entered into that certain BMO Revolving Lease and
Rental Credit Agreement (the "RTC Canada Revolving Agreement") with Bank of
Montreal ("BMO"). Pursuant to the terms of the RTC Canada Revolving Agreement,
BMO agreed to make up to $140.0 million of revolving credit loans to finance
certain of RTC Canada's capital expenditures, including commercial vehicle
purchases and other equipment to be leased or rented through RTC Canada's
Idealease franchise. Advances under the RTC Canada Revolving Agreement bear
interest per annum, payable on the first business day of each calendar month, at
the Canadian Dollar Offered Rate (CDOR), plus 1.35%. The RTC Canada Revolving
Agreement expires September 14, 2026. On June 30, 2022, we had approximately
$66.6 million outstanding under the RTC Canada Revolving Agreement.



On July 15, 2022, RTC Canada entered into that certain Amended and Restated BMO
Wholesale Financing and Security Agreement (the "RTC Canada Floor Plan
Agreement") with BMO. Pursuant to the terms of the Agreement, BMO agreed to make
up to $116.7 million CAD of revolving credit loans to finance RTC Canada's
purchase of new and used vehicle inventory. Loans to purchase used vehicle
inventory are limited to twenty percent (20%) of the credit limit available at
such time. RTC Canada may borrow, repay and reborrow loans from time to time
until the maturity date, provided, however, that the outstanding principal
amount on any date shall not exceed the credit limits set forth above with
respect to new and used vehicles. Advances under the RTC Canada Floor Plan
Agreement bear interest per annum, payable on the first business day of each
calendar month, at the Canadian Dollar Offered Rate (CDOR), plus 0.90% and in
the case of an advance required to be made in USD dollars, at the London
Interbank Offered Rate (LIBOR), plus 1.10%. The RTC Canada Floor Plan Agreement
expires September 14, 2026.



Navistar Financial Corporation and Peterbilt offer trade terms that provide an
interest-free inventory stocking period for certain new commercial vehicles.
This interest-free period is generally 15 to 60 days.  If the commercial vehicle
is not sold within the interest-free period, we then finance the commercial
vehicle under the Floor Plan Credit Agreement.



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Backlog



On June 30, 2022, our backlog of commercial vehicle orders was approximately
$3,682.9 million, as compared to a backlog of commercial vehicle orders of
approximately $2,258.9 million on June 30, 2021.  This increase in our backlog
is primarily due to the Summit acquisition and the consolidation of RTC Canada
into our operating results, in addition to production constraints experienced by
the manufacturers we represent.  Our backlog is determined quarterly by
multiplying the number of new commercial vehicles for each particular type of
commercial vehicle ordered by a customer at our Rush Truck Centers by the recent
average selling price for that type of commercial vehicle.  We include only
confirmed orders in our backlog.  However, such orders are subject to
cancellation.  In the event of order cancellation, we have no contractual right
to the total revenues reflected in our backlog.  The delivery time for a
custom-ordered commercial vehicle varies depending on the truck specifications
and demand for the particular model ordered.  We sell the majority of our new
heavy-duty commercial vehicles by customer special order and we sell the
majority of our medium- and light-duty commercial vehicles out of inventory.
Orders from a number of our major fleet customers are included in our backlog as
of June 30, 2022, and we expect to fill the majority of our backlog orders
during 2022 and the first quarter of 2023, assuming that the manufacturers we
represent can meet their current production schedule.  Our current backlog is
the largest it has ever been in our Company's history.  Given the potential for
industry headwinds in the coming months caused by lower spot rates and higher
interest rates and fuel prices, which could negatively impact industry demand
for new commercial vehicles moving forward, we believe that the longer it takes
to fill our backlog, the greater the risk that a significant amount of
commercial vehicle orders currently reflected in our backlog could be
cancelled.



Seasonality



Our Truck Segment is moderately seasonal. Seasonal effects on new commercial
vehicle sales related to the seasonal purchasing patterns of any single customer
type are mitigated by the diverse geographic locations of our dealerships and
our diverse customer base, including regional and national fleets, local and
state governments, corporations and owner-operators. However, commercial vehicle
Aftermarket Products and Services operations historically have experienced
higher sales volumes in the second and third quarters.



Cyclicality



Our business is dependent on a number of factors including general economic
conditions, fuel prices, interest rate fluctuations, credit availability,
environmental and other government regulations and customer business cycles.
Unit sales of new commercial vehicles have historically been subject to
substantial cyclical variation based on these general economic conditions.
According to data published by A.C.T. Research, total U.S. retail sales of new
Class 8 commercial vehicles have ranged from a low of approximately 110,000 in
2010, to a high of approximately 281,440 in 2019. Through geographic expansion,
concentration on higher margin Aftermarket Products and Services and
diversification of our customer base, we have attempted to reduce the negative
impact of adverse general economic conditions or cyclical trends affecting the
Class 8 commercial vehicle industry on our earnings.



Environmental Standards and Other Governmental Regulations




We are subject to federal, state and local environmental laws and regulations
governing the following: discharges into the air and water; the operation and
removal of underground and aboveground storage tanks; the use, handling, storage
and disposal of hazardous substances, petroleum and other materials; and the
investigation and remediation of environmental impacts. As with commercial
vehicle dealerships generally, and vehicle service, parts and collision center
operations in particular, our business involves the generation, use, storage,
handling and contracting for recycling or disposal of hazardous materials or
wastes and other environmentally sensitive materials. We have incurred, and will
continue to incur, capital and operating expenditures and other costs in
complying with such laws and regulations.



Our operations involving the use, handling, storage and disposal of hazardous
and nonhazardous materials are subject to the requirements of the federal
Resource Conservation and Recovery Act, or RCRA, and comparable state statutes.
Pursuant to these laws, federal and state environmental agencies have
established approved methods for handling, storage, treatment, transportation
and disposal of regulated substances with which we must comply. Our business
also involves the operation and use of aboveground and underground storage
tanks. These storage tanks are subject to periodic testing, containment,
upgrading and removal under RCRA and comparable state statutes. Furthermore,
investigation or remediation may be necessary in the event of leaks or other
discharges from current or former underground or aboveground storage tanks.



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We may also have liability in connection with materials that were sent to
third­party recycling, treatment, or disposal facilities under the federal
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
and comparable state statutes. These statutes impose liability for investigation
and remediation of environmental impacts without regard to fault or the legality
of the conduct that contributed to the impacts. Responsible parties under these
statutes may include the owner or operator of the site where impacts occurred
and companies that disposed, or arranged for the disposal, of the hazardous
substances released at these sites. These responsible parties also may be liable
for damages to natural resources. In addition, it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the release of hazardous
substances or other materials into the environment.



The federal Clean Water Act and comparable state statutes require containment of
potential discharges of oil or hazardous substances, and require preparation of
spill contingency plans. Water quality protection programs govern certain
discharges from some of our operations. Similarly, the federal Clean Air Act and
comparable state statutes regulate emissions of various air emissions through
permitting programs and the imposition of standards and other requirements.



The Environmental Protection Agency ("EPA") and the National Highway Traffic
Safety Administration ("NHTSA"), on behalf of the U.S. Department of
Transportation, issued rules associated with reducing greenhouse gas ("GHG")
emissions and improving the fuel efficiency of medium and heavy-duty trucks and
buses for current model years through 2027.  In addition, in August 2021, the
President of the United States issued an executive order intended to increase
fuel efficiency, further reduce GHG emissions and speed up the development of
"zero-emission" vehicles. The executive order calls for the EPA and the
Secretary of Transportation to adopt new rules and regulations for commercial
vehicles starting as early as model year 2027. Similarly, in June 2020, the
California Air Resources Board adopted a final rule that is intended to phase
out the sale of diesel-powered commercial vehicles over time by requiring a
certain percentage of each manufacturer's commercial vehicles sold within the
state to be "zero-emission vehicles," or "near-zero emission vehicles," starting
in model year 2024. In addition, in July 2020, a group of fifteen U.S. states
and the District of Columbia entered into a joint memorandum of understanding
that commits each of them to work together to advance and accelerate the market
for electric Class 3 through 8 commercial vehicles; two additional states have
since signed. Five of the states that signed are states where we operate new
commercial vehicle dealerships: California, Colorado, Nevada, North Carolina and
Virginia. The signatories to the memorandum all agreed on a goal of ensuring
that 100% of new Class 3 through 8 commercial vehicles are zero emission by
2050, with an interim target of 30% zero emission by 2030. Attaining these goals
would likely require the adoption of new laws and regulations and we cannot
predict at this time whether such laws and regulations would have an adverse
impact on our business. Additional regulations could result in increased
compliance costs, additional operating restrictions or changes in demand for our
products and services, which could have a material adverse effect on our
business, financial condition and results of operations.



We do not believe that we currently have any material environmental liabilities
or that compliance with environmental laws and regulations will have a material
adverse effect on our results of operations, financial condition or cash flows.
However, soil and groundwater impacts are known to exist at some of our
dealerships. Further, environmental laws and regulations are complex and subject
to change. In addition, in connection with acquisitions, it is possible that we
will assume or become subject to new or unforeseen environmental costs or
liabilities, some of which may be material. In connection with our dispositions,
or prior dispositions made by companies we acquire, we may retain exposure for
environmental costs and liabilities, some of which may be material. Compliance
with current or amended, or new or more stringent, laws or regulations, stricter
interpretations of existing laws or the future discovery of environmental
conditions could require additional expenditures by us, which could materially
adversely affect our results of operations, financial condition or cash flows.
In addition, such laws could affect demand for the products that we sell.



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