Company Quick10K Filing
Rush Enterprises
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 38 $1,356
10-Q 2019-11-08 Quarter: 2019-09-30
10-Q 2019-08-09 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-02-25 Annual: 2018-12-31
10-Q 2018-11-09 Quarter: 2018-09-30
10-Q 2018-08-09 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-01 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-09 Quarter: 2017-06-30
10-Q 2017-05-10 Quarter: 2017-03-31
10-K 2017-03-01 Annual: 2016-12-31
10-Q 2016-11-08 Quarter: 2016-09-30
10-Q 2016-08-09 Quarter: 2016-06-30
10-Q 2016-05-10 Quarter: 2016-03-31
10-K 2016-02-29 Annual: 2015-12-31
10-Q 2015-11-09 Quarter: 2015-09-30
10-Q 2015-08-07 Quarter: 2015-06-30
10-Q 2015-05-11 Quarter: 2015-03-31
10-K 2015-03-02 Annual: 2014-12-31
10-Q 2014-11-10 Quarter: 2014-09-30
10-Q 2014-08-08 Quarter: 2014-06-30
10-Q 2014-05-12 Quarter: 2014-03-31
10-K 2014-03-03 Annual: 2013-12-31
10-Q 2013-11-08 Quarter: 2013-09-30
10-Q 2013-08-09 Quarter: 2013-06-30
10-Q 2013-05-10 Quarter: 2013-03-31
10-K 2013-03-15 Annual: 2012-12-31
10-Q 2012-11-09 Quarter: 2012-09-30
10-Q 2012-08-09 Quarter: 2012-06-30
10-Q 2012-05-10 Quarter: 2012-03-31
10-Q 2011-11-09 Quarter: 2011-09-30
10-Q 2011-08-09 Quarter: 2011-06-30
10-Q 2011-05-10 Quarter: 2011-03-31
10-K 2011-03-11 Annual: 2010-12-31
10-Q 2010-11-09 Quarter: 2010-09-30
10-Q 2010-08-09 Quarter: 2010-06-30
10-Q 2010-05-10 Quarter: 2010-03-31
10-K 2010-03-12 Annual: 2009-12-31
8-K 2019-11-26 Other Events
8-K 2019-11-01 Exhibits
8-K 2019-10-23 Earnings, Regulation FD
8-K 2019-10-02 Officers
8-K 2019-08-09 Regulation FD, Exhibits
8-K 2019-07-24 Earnings, Regulation FD
8-K 2019-05-14 Regulation FD
8-K 2019-05-14 Shareholder Vote
8-K 2019-04-25 Enter Agreement, Off-BS Arrangement
8-K 2019-04-24 Earnings, Regulation FD
8-K 2019-03-05 Officers, Other Events, Exhibits
8-K 2019-02-13 Earnings, Regulation FD
8-K 2019-02-06 Other Events
8-K 2018-10-31 Other Events
8-K 2018-10-25 Regulation FD, Exhibits
8-K 2018-10-23 Earnings, Regulation FD, Exhibits
8-K 2018-08-29 Regulation FD, Exhibits
8-K 2018-07-24 Earnings, Regulation FD
8-K 2018-05-17 Other Events
8-K 2018-05-15 Shareholder Vote
8-K 2018-05-02 Regulation FD, Exhibits
8-K 2018-04-23 Earnings, Exhibits
8-K 2018-03-20 Regulation FD, Exhibits
8-K 2018-03-08 Officers, Other Events, Exhibits
8-K 2018-02-20 Officers
8-K 2018-02-14 Earnings, Exhibits
8-K 2017-12-28 Officers
RUSHA 2019-09-30
Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex_162679.htm
EX-31.2 ex_162680.htm
EX-32.1 ex_162681.htm

Rush Enterprises Earnings 2019-09-30

RUSHA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
ABG 1,620 2,814 2,258 7,016 1,134 180 352 2,538 16% 7.2 6%
CTB 1,560 2,704 1,512 2,806 452 72 292 1,741 16% 6.0 3%
GPI 1,375 5,226 4,062 11,612 1,753 153 268 2,630 15% 9.8 3%
RUSHA 1,356 3,531 2,417 5,809 1,034 167 327 1,702 18% 5.2 5%
CWH 1,096 3,673 3,647 4,834 1,360 51 114 995 28% 8.7 1%
SAH 1,001 4,119 3,244 10,048 1,472 106 347 1,923 15% 5.5 3%
CRMT 662 549 275 677 308 52 80 819 45% 10.3 10%
CMSS 208 214 209 0 0 3 3 208 69.8 1%
LAZY 45 358 221 0 0 1 1 36 36.9 0%
TA 29 3,245 2,719 6,218 1,450 -88 3 324 23% 105.6 -3%

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________________ to ____________________________________________

 

Commission File Number 0-20797

 

RUSH ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

 

Texas   74-1733016
(State or other jurisdiction of    (I.R.S. Employer Identification No.)
incorporation or organization)     

 

555 I.H. 35 South, Suite 500

New Braunfels, Texas 78130

(Address of principal executive offices)

(Zip Code)

 

(830) 302-5200

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                                   Yes ☑          No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑                    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller Reporting company

 

 

 

 

 

 

 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                                  Yes           No ☑

 

Indicated below is the number of shares outstanding of each of the issuer’s classes of common stock, as of November 1, 2019.

 

   Number of Shares
                   Title of Class Outstanding
Class A Common Stock, $.01 Par Value 27,882,992
Class B Common Stock, $.01 Par Value 8,261,903

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 par value

RUSHA

NASDAQ Global Select Market

Class B Common Stock, $0.01 par value

RUSHB

NASDAQ Global Select Market

 

 

Table of Contents

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

 

INDEX

 

 

PART I. FINANCIAL INFORMATION

Page

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets - September 30, 2019 (unaudited) and December 31, 2018

3

 

 

 

 

Consolidated Statements of Income and Comprehensive Income - For the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)

4

 

 

 

 

Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 2019 and 2018 (unaudited)

5

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 3.

Defaults Upon Senior Securities

30

 

 

 

Item 4.

Mine Safety Disclosures

30

 

 

 

Item 5.

Other Information

30

 

 

 

Item 6.

Exhibits

30

 

 

 

SIGNATURES

31

 

2

Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Shares)

 

   

September 30,

   

December 31,

 
   

2019

   

2018

 
   

(unaudited)

         

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 86,117     $ 131,726  

Accounts receivable, net

    220,378       190,650  

Note receivable affiliate

    12,310       12,885  

Inventories, net

    1,385,132       1,339,923  

Prepaid expenses and other

    24,419       10,491  

Assets held for sale

    419       2,269  

Total current assets

    1,728,775       1,687,944  

Property and equipment, net

    1,261,370       1,184,053  

Operating lease right-of-use assets, net

    56,372        

Goodwill, net

    292,142       291,391  

Other assets, net

    66,595       37,962  

Total assets

  $ 3,405,254     $ 3,201,350  
                 

Liabilities and shareholders’ equity

               

Current liabilities:

               

Floor plan notes payable

  $ 1,051,241     $ 1,023,019  

Current maturities of long-term debt

    158,722       161,955  

Current maturities of finance lease obligations

    20,995       19,631  

Current maturities of operating lease obligations

    9,787        

Trade accounts payable

    137,781       127,451  

Customer deposits

    33,553       36,183  

Accrued expenses

    106,768       125,056  

Total current liabilities

    1,518,847       1,493,295  

Long-term debt, net of current maturities

    462,646       439,218  

Finance lease obligations, net of current maturities

    57,077       49,483  

Operating lease obligations, net of current maturities

    46,899        

Other long-term liabilities

    19,621       11,118  

Deferred income taxes, net

    162,911       141,308  

Shareholders’ equity:

               

Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares outstanding in 2019 and 2018

           

Common stock, par value $.01 per share; 60,000,000 Class A shares and 20,000,000 Class B shares authorized; 27,806,319 Class A shares and 8,283,916 Class B shares outstanding in 2019; and 28,709,636 Class A shares and 8,290,277 Class B shares outstanding in 2018

    463       458  

Additional paid-in capital

    390,359       370,025  

Treasury stock, at cost: 4,995,651 Class A shares and 5,262,911 Class B shares in 2019 and 3,791,751 Class A shares and 5,030,787 Class B shares in 2018

    (300,041 )     (245,842 )

Retained earnings

    1,046,538       942,287  

Accumulated other comprehensive income

    (66 )      

Total shareholders’ equity

    1,137,253       1,066,928  

Total liabilities and shareholders’ equity

  $ 3,405,254     $ 3,201,350  

 

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

 

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RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Revenues:

                               

New and used commercial vehicle sales

  $ 1,070,868     $ 878,845     $ 2,933,952     $ 2,508,970  

Aftermarket products and services sales

    454,785       426,845       1,341,305       1,250,080  

Lease and rental

    62,949       60,825       183,973       177,342  

Finance and insurance

    5,863       5,053       18,874       15,286  

Other

    4,800       4,568       14,039       14,070  

Total revenue

    1,599,265       1,376,136       4,492,143       3,965,748  

Cost of products sold:

                               

New and used commercial vehicle sales

    997,946       808,634       2,717,484       2,311,156  

Aftermarket products and services sales

    284,328       268,521       830,153       788,148  

Lease and rental

    52,223       49,924       153,316       147,015  

Total cost of products sold

    1,334,497       1,127,079       3,700,953       3,246,319  

Gross profit

    264,768       249,057       791,190       719,429  

Selling, general and administrative expense

    192,482       177,405       573,644       527,729  

Depreciation and amortization expense

    14,033       12,794       40,552       57,395  

Gain (loss) on sale of assets

    70       (209 )     (12 )     159  

Operating income

    58,323       58,649       176,982       134,464  

Other income

    1,577       -       2,316       -  

Interest expense, net

    7,690       4,468       23,120       13,268  

Income before taxes

    52,210       54,181       156,178       121,196  

Provision for income taxes

    13,106       12,516       38,349       29,103  

Net income

  $ 39,104     $ 41,665     $ 117,829     $ 92,093  
                                 

Earnings per common share:

                               

Basic

  $ 1.07    

$

1.06     $ 3.21     $ 2.33  

Diluted

  $ 1.05     $ 1.03     $ 3.13     $ 2.27  
                                 

Weighted average shares outstanding:

                               

Basic

    36,545       39,309       36,744       39,480  

Diluted

    37,351       40,388       37,625       40,635  
                                 

Dividends declared per common share

  $ 0.13     $ 0.12     $ 0.37     $ 0.12  
                                 

Comprehensive income

  $ 39,159     $ 41,665     $ 117,763     $ 92,093  

 

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

 

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RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

   

Nine Months Ended

 
   

September 30,

 
   

2019

   

2018

 

Cash flows from operating activities:

               

Net income

  $ 117,829     $ 92,093  

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

               

Depreciation and amortization

    129,618       142,648  

Loss (gain) on sale of property and equipment

    12       (159 )

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

    15,803       15,850  

Provision for deferred income tax expense

    21,603       12,125  

Change in accounts receivable, net

    (29,153 )     6,172  

Change in inventories, net

    5,709       (200,662 )

Change in prepaid expenses and other, net

    (13,928 )     1,241  

Change in trade accounts payable

    9,848       26,238  

(Payments) draws on floor plan notes payable – trade, net

    (14,148 )     87,548  

Change in customer deposits

    (2,630 )     13,219  

Change in accrued expenses

    (18,715 )     6,710  

Other, net

    (227 )     -  

Net cash provided by operating activities

    221,621       203,023  

Cash flows from investing activities:

               

Acquisition of property and equipment

    (230,595 )     (176,221 )

Proceeds from the sale of property and equipment

    2,100       5,822  

Proceeds from the sale of available for sale securities

    -       6,375  

Business acquisitions

    (10,168 )     -  

Purchase of equity method investment and call option

    (22,499 )     -  

Change in other assets

    2,412       (1,803 )

Net cash used in investing activities

    (258,750 )     (165,827 )

Cash flows from financing activities:

               

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

    42,370       124,485  

Proceeds from long-term debt

    162,039       115,216  

Draws on line of credit

    135,000       -  

Principal payments on long-term debt

    (141,844 )     (127,354 )

Principal payments on finance lease obligations

    (7,508 )     (9,511 )

Payments on line of credit

    (135,000 )     -  

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

    4,536       3,764  

Payments of cash dividends

    (13,578 )     (4,692 )

Common stock repurchased

    (53,764 )     (58,076 )

Debt issuance costs

    (731 )     -  

Net cash (used in) provided by financing activities

    (8,480 )     43,832  

Net (decrease) increase in cash and cash equivalents

    (45,609 )     81,028  

Cash and cash equivalents, beginning of period

    131,726       124,541  

Cash and cash equivalents, end of period

  $ 86,117     $ 205,569  

Supplemental disclosure of cash flow information:

               

Cash paid during the period for:

               

Interest

  $ 43,909     $ 31,002  

Income taxes, net of refunds

  $ 41,197     $ 15,990  

Noncash investing activities:

               

Assets acquired under finance leases

  $ 24,754     $ 3,241  

Common stock repurchased

  $ 435       -  

Guaranty agreement

  $ 5,025       -  

 

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

 

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RUSH ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1 – Principles of Consolidation and Basis of Presentation

 

The interim consolidated financial statements included herein have been prepared by Rush Enterprises, Inc. and its subsidiaries (collectively referred to as the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All adjustments have been made to the accompanying interim consolidated financial statements, which, in the opinion of the Company’s management, are necessary for a fair presentation of its operating results. All adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is recommended that these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

 

 

2 –Other Assets

 

ERP Platform

 

The total capitalized costs of the Company’s SAP enterprise resource planning software platform (“ERP Platform”) of $9.4 million are recorded on the Consolidated Balance Sheet in Other Assets. Amortization expense relating to the ERP Platform, which is recognized in depreciation and amortization expense in the Consolidated Statements of Income and Comprehensive Income, was $0.5 million for the three months ended September 30, 2019 and $0.5 million for the three months ended September 30, 2018, and $1.4 million for the nine months ended September 30, 2019 and $21.2 million for the nine months ended September 30, 2018. The Company estimates that amortization expense relating to the ERP Platform will be approximately $1.9 million for each of the next five years.

 

In the first quarter of 2018, as part of an assessment that involved a technical feasibility study of the then current ERP Platform, the Company determined that a majority of the components of this ERP Platform would require replacement earlier than originally anticipated; in prior disclosures, the Company had referred to the ERP Platform separately as the SAP enterprise software and SAP dealership management system. In accordance with Accounting Standards Codification (“ASC”) Topic 350-40, in the first quarter of 2018, the Company adjusted the useful life of these components that were replaced so that the respective net book values of the components were fully amortized upon replacement in May 2018. The Company amortized the remaining net book value of the components that were replaced on a straight-line basis in February 2018 through May 2018. The Company recorded amortization expense of $19.9 million in the nine months ended September 30, 2018 related to the components of the ERP Platform that were replaced. The ERP Platform asset and related amortization are reflected in the Truck Segment.

 

Franchise Rights

 

The Company’s only significant identifiable intangible assets, other than goodwill, are rights under franchise agreements with manufacturers. The fair value of the 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 $7.0 million at September 30, 2019 and December 31, 2018, 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 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. Management reviews indefinite-lived manufacturer franchise rights for impairment annually during the fourth quarter, or more often if events or circumstances indicate that an impairment may have occurred. 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.

 

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The significant estimates and assumptions used by management in assessing the recoverability of manufacturer franchise rights include estimated future cash flows, present value discount rate and other factors. Any changes in these estimates or assumptions could result in an impairment charge. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgment. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluations of manufacturer franchise rights can vary within a range of outcomes.

 

No impairment write down was required in the period presented. The Company cannot predict the occurrence of certain events that might adversely affect the reported value of manufacturer franchise rights in the future.

 

Equity Method Investment and Call Option

 

On February 25, 2019, the Company acquired a 50% equity interest in Rush Truck Centres of Canada Limited (“RTC Canada”), which acquired the operating assets of Tallman Group, the largest International Truck dealer in Canada. The Company was also granted a call option in the purchase agreement that provides the Company with the right to acquire the remaining 50% equity interest in RTC Canada until the close of business on February 25, 2024. The value of the Company’s call option was $3.6 million as of September 30, 2019, and is reported in Other Assets on the Consolidated Balance Sheet.

 

On April 25, 2019, the Company entered into a Guaranty Agreement (“Guaranty”) with Bank of Montreal (“BMO”), pursuant to which the Company agreed to guaranty up to CAD250 million (the “Guaranty Cap”) of certain credit facilities entered into by and between Tallman Truck Centre Limited (“TTCL”) and BMO. TTCL is a subsidiary of RTC Canada, of which the Company owns a 50% equity interest. Interest, fees and expenses incurred by BMO to enforce its rights with respect to the guaranteed obligations and its rights against the Company under the Guaranty are not subject to the Guaranty Cap. In exchange for the Guaranty, TTCL is receiving a reduced rate of interest on its credit facilities with BMO. The Guaranty was valued at $5.0 million as of  September 30, 2019 and is included in the investment in RTC Canada. As of September 30, 2019, the Company’s investment in RTC Canada is $25.2 million. The Company’s equity income in RTC Canada is included in Other income on the Consolidated Statements of Income and Comprehensive Income.

 

 

3 – 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, including product liability coverage, in amounts deemed adequate by management. To date, aggregate costs to us for claims, including product liability actions, have not been material. 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. The Company believes that there are no claims or litigation pending, the outcome of which could 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.

 

 

4 – Earnings Per Share

 

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

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Numerator:

                               

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

  $ 39,104     $ 41,665     $ 117,829     $ 92,093  

Denominator:

                               

Denominator for basic earnings per share – weighted average shares outstanding

    36,545       39,309       36,744       39,480  

Effect of dilutive securities – Employee and director stock options and restricted share awards

    806       1,079       881       1,155  

Denominator for diluted earnings per share – adjusted weighted average shares outstanding and assumed conversions

    37,351       40,388       37,625       40,635  

Basic earnings per common share

  $ 1.07     $ 1.06     $ 3.21     $ 2.33  

Diluted earnings per common share and common share equivalents

  $ 1.05     $ 1.03     $ 3.13     $ 2.27  

 

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Options to purchase shares of common stock that were outstanding for the three months and nine months ended September 30, 2019 and 2018 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive are as follows (in thousands):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Weighted average anti-dilutive options

    1,377       455       1,249       432  

 

 

5 Stock Options and Restricted Stock Awards

 

Valuation and Expense Information

 

The Company accounts for stock-based compensation in accordance with ASC 718-10, “Compensation – Stock Compensation,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options, restricted stock unit awards and employee stock purchases related to the Employee Stock Purchase Plan based on estimated fair values.

 

Stock-based compensation expense, calculated using the Black-Scholes option-pricing model for employee stock options and included in selling, general and administrative expense, was $2.7 million for the three months ended September 30, 2019, and $2.0 million for the three months ended September 30, 2018. Stock-based compensation expense for the nine months ended September 30, 2019 and nine months ended September 30, 2018, was $15.8 million.

 

As of September 30, 2019, the Company had $9.3 million of unrecognized compensation expense related to non-vested employee stock options to be recognized over a weighted-average period of 2.4 years and $9.8 million of unrecognized compensation cost related to non-vested restricted stock units and non-vested restricted stock awards to be recognized over a weighted-average period of 1.4 years.

 

 

6 – Financial Instruments and Fair Value

 

The Company has various financial instruments that it must measure at fair value on a recurring basis. 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 on 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 on 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.

 

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 at September 30, 2019, and December 31, 2018. 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 its current credit standing and has categorized such debt within Level 2 of the hierarchy framework. The carrying amount approximates fair value.

 

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7 – Segment Information

 

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, 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 income before income taxes, not including extraordinary items.

 

The following table contains summarized information about reportable segment revenues, segment income or loss from continuing operations and segment assets for the periods ended September 30, 2019 and 2018 (in thousands):

 

   

Truck

Segment

   

All Other

   

Total

 
                         

As of and for the three months ended September 30, 2019

                       
                         

Revenues from external customers

  $ 1,595,285     $ 3,980     $ 1,599,265  

Segment operating income (loss)

    58,642       (319 )     58,323  

Segment income before taxes

    51,250       960       52,210  

Segment assets

    3,364,895       40,359       3,405,254  
                         

For the nine months ended September 30, 2019

                       
                         

Revenues from external customers

  $ 4,479,972     $ 12,171     $ 4,492,143  

Segment operating income

    176,963       19       176,982  

Segment income before taxes

    155,024       1,154       156,178  
                         

As of and for the three months ended September 30, 2018

                       
                         

Revenues from external customers

  $ 1,371,472     $ 4,664     $ 1,376,136  

Segment operating income (loss)

    58,665       (16 )     58,649  

Segment income (loss) before taxes

    54,250       (69 )     54,181  

Segment assets

    3,152,204       37,599       3,189,803  
                         

For the nine months ended September 30, 2018

                       
                         

Revenues from external customers

  $ 3,952,396     $ 13,352     $ 3,965,748  

Segment operating income

    134,151       313       134,464  

Segment income before taxes

    121,037       159       121,196  

 

 

8 – Income Taxes

 

The Company had unrecognized income tax benefits totaling $2.4 million as a component of accrued liabilities at September 30, 2019 and December 31, 2018, the total of which, if recognized, would impact the Company’s effective tax rate. An unfavorable settlement may require a charge to income tax expense and a favorable resolution would be recognized as a reduction to income tax expense. The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. The Company had approximately $139,000 accrued for the payment of interest at September 30, 2019 and December 31, 2018. No amounts were accrued for penalties.

 

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The Company does not anticipate a significant change in the amount of unrecognized tax benefits in the next twelve months. As of September 30, 2019, the tax years ended December 31, 2017 through 2018 remain subject to audit by federal tax authorities and the tax years ended December 31, 2014 through 2018 remain subject to audit by state tax authorities.

 

The Company adopted ASU 2016-09 on January 1, 2017, which requires excess tax benefits and tax deficiencies to be recognized as income tax benefit or expense in the income statement and presented as an operating activity in the statement of cash flows when the awards are vested or are settled. The Company recognized a tax benefit for an equity compensation excess tax benefit of $405,000 in the third quarter of 2019 and $92,000 in the third quarter of 2018. The Company recognized a tax benefit for an equity compensation excess tax benefit of $467,000 in the first nine months of 2019 and $249,000 in the first nine months of 2018.

 

 

9 – 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 for 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.  

 

The following table summarizes the Company’s disaggregated revenue by revenue source for the three months and nine months ended September 30, 2019 and 2018 (in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2019

   

September 30, 2018

   

September 30, 2019

   

September 30, 2018

 

Commercial vehicle sales revenue

  $ 1,070,868     $ 878,845     $ 2,933,952     $ 2,508,970  

Parts revenue

    258,513       239,401       760,495       699,823  

Commercial vehicle repair service revenue

    196,272       187,444       580,810       550,257  

Finance revenue

    3,570       2,628       11,223       7,826  

Insurance revenue

    2,293       2,425       7,651       7,460  

Other revenue

    4,800       4,568       14,039       14,070  

Total

  $ 1,536,316     $ 1,315,311     $ 4,308,170     $ 3,788,406  

 

All of the Company's performance obligations and associated revenues are generally transferred to customers at a point in time. The Company does not have any material contract assets or contract liabilities on the balance sheet as of September 30, 2019. 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.

 

 

10 – Leases

 

In February 2016, the Financial Accounting Standards Board 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.

 

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.

 

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The Company adopted Topic 842 on January 1, 2019. The Company applied a modified retrospective transition approach for all leases existing at, or entered into after, January 1, 2019. The Consolidated Financial Statements for the three and nine months ended September 30, 2019 are presented under the new standard, while the comparative three and nine months ended September 30, 2018 are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy. The Company applied the practical expedients permitted within Topic 842, which among other things, allows 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 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 month to ten years. Commercial vehicle finance leases continue to be 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 $5.9 million for the three months ended September 30, 2019, and $17.7 million for the nine months ended September 30, 2019.

 

The Company usually guarantees the residual value of vehicles under operating lease and finance lease arrangements. At September 30, 2019, the Company guaranteed commercial vehicle residual values of approximately $43.5 million under operating lease and finance lease arrangements.

 

Lease of Facilities as Lessee

 

The Company’s facility leases are classified as operating leases and primarily reflect its use of dealership facilities and office space. The lease terms vary from one year to 88 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.

 

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

 

       

Three Months

Ended

   

Nine Months

Ended

 

Component

 

Classification

 

September 30,

2019

   

September 30,

2019

 

Operating lease cost

 

SG&A expense

  $ 3,524     $ 10,102  

Finance lease cost – amortization of right-of-use assets

 

Depreciation and amortization

    3,614       10,477  

Finance lease cost – interest on lease liabilities

 

Interest expense

    910       2,386  

Short-term lease cost

 

SG&A expense

    32       566  

 

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

 

   

Nine Months

Ended

 
   

September 30,

2019

 

Operating cash flow information:

       

Cash paid for amounts included in the measurement of lease liabilities

  $ 12,488  

Financing cash flow information:

       

Cash paid for amounts included in the measurement of lease liabilities

  $ 7,508  

Non-cash activity:

       

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

  $ 56,372  

 

Weighted-average remaining lease term and discount rate for operating and finance leases are as follows:

 

   

September 30, 2019

 

Weighted-average remaining lease term (in months)

 

70

 

Weighted-average discount rate

    4.5 %

 

Maturities of lease liabilities by fiscal year for finance leases and operating leases are as follows (in thousands):

 

   

Finance

Leases

   

Operating

Leases

 

2019 (a)

  $ 7,810     $ 3,391  

2020

    22,559       12,025  

2021

    17,928       10,097  

2022

    14,114       8,974  

2023

    8,850       7,611  

2024 and beyond

    14,996       31,424  

Total lease payments

  $ 86,257     $ 73,522  

Less: Imputed interest

    (8,185 )     (16,836 )

Present value of lease liabilities

  $ 78,072     $ 56,686  

(a)  Excluding the nine months ended September 30, 2019

 

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. 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 at September 30, 2019 in the amount of $5.2 million is reflected in Other Assets on the Consolidated Balance Sheet.

 

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Minimum rental payments to be received for non-cancelable leases and subleases in effect as of September 30, 2019, are as follows (in thousands):

 

2019 (a)

  $ 33,641  

2020

    119,913  

2021

    92,496  

2022

    68,141  

2023

    46,656  

Thereafter

    41,986  

Total

  $ 402,833  

(a)  Excluding the nine months ended September 30, 2019

 

Rental income during the three and nine months ended September 30, 2019, and September 30, 2018, consisted of the following (in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

2019

   

September 30,

2018

   

September 30,

2019

   

September 30,

2018

 

Minimum rental payments

  $ 55,139     $ 53,312     $ 161,708     $ 155,726  

Nonlease payments

    7,970       7,641       22,848       22,360  

Total

  $ 63,109     $ 60,953     $ 184,556     $ 178,086  

 

As of December 31, 2018, minimum lease payments under non-cancelable finance leases and operating leases by period were expected to be as follows (in thousands):

 

   

Finance

Leases

   

Operating

Leases

 

2019

  $ 22,033     $ 12,295  

2020

    19,113       10,466  

2021

    14,894       8,190  

2022

    11,062       7,078  

2023

    5,095       5,196  

Thereafter

    2,963       22,463  

Total lease payments

  $ 75,160     $ 65,688  

Less: Imputed interest

    (6,046 )        

Present value of lease liabilities

  $ 69,114          

 

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11Shareholders’ Equity

 

The Company declared and paid a $0.12 per common share cash dividend in the first and second quarter of 2019 and a $0.13 per common share cash dividend in the third quarter of 2019. Future dividends are subject to declaration by the Company’s Board of Directors.

 

   

Common Stock

                                   

Accumulated

         
   

Shares

Outstanding

   

$0.01

Par

   

Additional

Pain-In

   

 

Treasury

   

 

Retained

   

Other

Comprehensive

         
(in thousands)  
 
 
 
 
Class A
 
 
 
 
 
 
 
 
  Class B     Value     Capital     Stock     Earnings     Income     Total  
                                                                 

Balance, December 31, 2018

    28,710       8,290     $ 458     $ 370,025     $ (245,842 )   $ 942,287     $     $ 1,066,928  
                                                                 

Stock options exercised and stock awards

    59             1       1,230                         1,231  

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

                      8,836                         8,836  

Vesting of restricted share awards

          226       2       (2,317 )                       (2,315 )

Issuance of common stock under employee stock purchase plan

    57             1       1,680                         1,681  

Common stock repurchases

    (639 )     (53 )                 (26,048 )                 (26,048 )

Dividend Class A common stock

                                  (3,389 )           (3,389 )

Dividend Class B common stock

                                  (991 )           (991 )

Other comprehensive income

                                        384       384  

Net income

                                  37,104             37,104  

Balance, March 31, 2019

    28,187       8,463     $ 462     $ 379,454     $ (271,890 )   $ 975,011     $ 384     $ 1,083,421  

Stock options exercised and stock awards

    87                   1,745                         1,745  

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

                      4,258                         4,258  

Vesting of restricted share awards

                      (517 )                       (517 )

Issuance of common stock under employee stock purchase plan

                                               

Common stock repurchases

    (251 )     (67 )                 (12,062 )                 (12,062 )

Dividend Class A common stock

                                  (3,387 )           (3,387 )

Dividend Class B common stock

                                  (1,050 )           (1,050 )

Other comprehensive income

                                        (505 )     (505 )

Net income

                                  41,621             41,621  

Balance, June 30, 2019

    28,023       8,396     $ 462     $ 384,940     $ (283,952 )   $ 1,012,195     $ (121 )   $ 1,113,524  

Stock options exercised and stock awards

    36                   904                         904  

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

                      2,709                         2,709  

Vesting of restricted share awards

                                               

Issuance of common stock under employee stock purchase plan

    60             1       1,806                         1,807  

Common stock repurchases

    (313 )     (112 )                 (16,089 )                 (16,089 )

Dividend Class A common stock

                                  (3,637 )           (3,637 )

Dividend Class B common stock

                                  (1,124 )           (1,124 )

Other comprehensive income

                                        55       55  

Net income

                                  39,104             39,104  

Balance, September 30, 2019

    27,806       8,284     $ 463     $ 390,359     $ (300,041 )   $ 1,046,538     $ (66 )   $ 1,137,253  

 

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Common Stock

                                         
   

Shares

Outstanding

   

$0.01

Par

   

Additional

Paid-In

   

Treasury

   

Retained

         
(in thousands)   Class A     Class B     Value     Capital     Stock     Earnings     Total  
                                                         

Balance, December 31, 2017

    31,345       8,469     $ 454     $ 348,044     $ (120,682 )   $ 812,557     $ 1,040,373  
                                                         

Stock options exercised and stock awards

    30                   766                   766  

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

                      7,893