10-Q 1 rusha20220930_10q.htm FORM 10-Q rusha20220930_10q.htm
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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, 2022

 

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

incorporation or organization)

(I.R.S. Employer Identification No.)

                                                                        

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 October 31, 2022.

 

Title of Class 

Number of Shares

Outstanding

Class A Common Stock, $.01 Par Value 42,344,760
Class B Common Stock, $.01 Par Value  12,092,098

 

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

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

 

INDEX

 

 

PART I. FINANCIAL INFORMATION Page
   
  Item 1. Financial Statements 3
       
    Consolidated Balance Sheets - September 30, 2022 (unaudited) and December 31, 2021 3
       
   

Consolidated Statements of Income - For the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

4
       
   

Consolidated Statements of Comprehensive Income - For the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

5
       
   

Consolidated Statements of Shareholders’ Equity – For the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) 

6
       
   

Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 2022 and 2021 (unaudited) 

8
       
    Notes to Consolidated Financial Statements (unaudited) 9
       
  Item 2.

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

16
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
       
  Item 4. Controls and Procedures 30
       
       
       
PART II. OTHER INFORMATION  
       
  Item 1. Legal Proceedings 30
       
  Item 1A. Risk Factors 31
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
       
  Item 3. Defaults Upon Senior Securities 31
       
  Item 4. Mine Safety Disclosures  31
       
  Item 5. Other Information 31
       
  Item 6. Exhibits 32
       
SIGNATURES  33
 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Shares)

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 
   

(unaudited)

         

Assets

               
Current assets:                

Cash and cash equivalents

  $ 219,519     $ 148,146  

Accounts receivable, net

    220,832       140,186  

Inventories, net

    1,351,930       1,020,136  

Prepaid expenses and other

    17,075       15,986  

Total current assets

    1,809,356       1,324,454  

Property and equipment, net

    1,351,968       1,278,207  

Operating lease right-of-use assets, net

    103,652       69,008  

Goodwill, net

    415,754       370,331  

Other assets, net

    61,849       77,977  

Total assets

  $ 3,742,579     $ 3,119,977  
                 

Liabilities and shareholders equity

               
Current liabilities:                

Floor plan notes payable

  $ 935,785     $ 630,731  

Current maturities of finance lease obligations

    28,165       26,695  

Current maturities of operating lease obligations

    15,176       12,096  

Trade accounts payable

    185,695       122,291  

Customer deposits

    91,188       80,561  

Accrued expenses

    163,374       131,130  

Total current liabilities

    1,419,383       1,003,504  

Long-term debt, net of current maturities

    307,065       334,926  

Finance lease obligations, net of current maturities

    82,613       89,835  

Operating lease obligations, net of current maturities

    89,729       57,976  

Other long-term liabilities

    19,376       26,514  

Deferred income taxes, net

    148,394       140,473  
Shareholders’ equity:                

Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares outstanding in 2022 and 2021

    -       -  

Common stock, par value $.01 per share; 60,000,000 Class A shares and 20,000,000 Class B shares authorized; 42,373,737 Class A shares and 12,092,098 Class B shares outstanding in 2022; and 43,018,498 Class A shares and 12,474,589 Class B shares outstanding in 2021

    571       563  

Additional paid-in capital

    494,703       470,750  

Treasury stock, at cost: 1,493,121 Class A shares and 1,103,433 Class B shares in 2022; and 183,765 Class A shares and 416,069 Class B shares in 2021

    (123,781 )     (36,933 )

Retained earnings

    1,291,602       1,031,582  

Accumulated other comprehensive income (loss)

    (5,637 )     787  

Total Rush Enterprises, Inc. shareholders’ equity

    1,657,458       1,466,749  

Noncontrolling interest

    18,561        

Total shareholders’ equity

    1,676,019       1,466,749  

Total liabilities and shareholders equity

  $ 3,742,579     $ 3,119,977  

 

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

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2022

   

2021

   

2022

   

2021

 
                                 
Revenues                                

New and used commercial vehicle sales

  $ 1,142,201     $ 729,344    

$

3,176,175     $ 2,274,332  

Aftermarket products and services sales

    622,130       463,020       1,763,691       1,324,283  

Lease and rental sales

    85,688       62,689       237,561       182,312  

Finance and insurance

    7,639       6,851       22,919       20,723  

Other

    6,628       4,617       18,383       12,692  

Total revenue

    1,864,286       1,266,521       5,218,729       3,814,342  
Cost of products sold                                

New and used commercial vehicle sales

    1,045,658       656,411       2,875,057       2,053,271  

Aftermarket products and services sales

    378,748       280,866       1,080,240       819,786  

Lease and rental sales

    58,482       46,949       162,378       143,394  

Total cost of products sold

    1,482,888       984,226       4,117,675       3,016,451  

Gross profit

    381,398       282,295       1,101,054       797,891  

Selling, general and administrative expense

    242,609       179,890       692,383       539,579  

Depreciation and amortization expense

    13,961       13,137       41,545       40,284  

Gain on sale of assets

    2,209       901       2,433       1,157  

Operating income

    127,037       90,169       369,559       219,185  

Other (expense) income

    (215 )     1,951       22,182       4,616  

Interest expense, net

    6,275       271       10,662       566  

Income before taxes

    120,547       91,849       381,079       223,235  

Income tax provision

    29,884       22,450       87,290       50,459  

Net income

    90,663       69,399       293,789       172,776  

Less: Net income attributable to noncontrolling interest

    287             733        

Net income attributable to Rush Enterprises, Inc.

  $ 90,376     $ 69,399     $ 293,056     $ 172,776  
                                 
Net income attributable to Rush Enterprises, Inc. per share of common stock:                                

Basic

  $ 1.64     $ 1.24     $ 5.27     $ 3.09  

Diluted

  $ 1.59     $ 1.20     $ 5.11     $ 2.99  
                                 
Weighted average shares outstanding:                                

Basic

    55,232       56,007       55,601       55,882  

Diluted

    56,875       57,806       57,363       57,834  
                                 

Dividends declared per common share

  $ 0.21     $ 0.19     $ 0.59     $ 0.55  

 

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

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

 

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2022

   

2021

   

2022

   

2021

 
                                 

Net income

  $ 90,663     $ 69,399     $ 293,789     $ 172,776  
                                 

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation

    (5,701 )     (471 )     (5,823 )     96  

Reclassification of currency translation related to equity method accounting

                (601 )      

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

    (5,701 )     (471 )     (6,424 )     96  

Comprehensive income

  $ 84,962     $ 68,928     $ 287,365     $ 172,872  

Less: Comprehensive income attributable to noncontrolling interest

    287             733        

Comprehensive income attributable to Rush Enterprises, Inc.

  $ 84,675     $ 68,928     $ 286,632     $ 172,872  

 

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

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(In Thousands)

(Unaudited)

 

   

Common Stock

Shares

Outstanding

Class A Class B

   

$0.01 Par

Value

   

Additional

Paid -In

Capital

   

Treasury

Stock

   

Retained

Earnings

   

Accumulated

Other

Comprehensive Income (Loss)

   

Total

Rush Enterprises, Inc.

Shareholders’ Equity

   

Noncontrolling

Interest

   

Total

Shareholders’ Equity

 
                                                                                 

Balance, December 31, 2021

    43,108       12,399     $ 563     $ 470,750     $ (36,933 )   $ 1,031,582     $ 787     $ 1,466,749           $ 1,466,749  

Stock options exercised and stock awards

    112             1       2,384                         2,385             2,385  

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

                      13,793                         13,793             13,793  

Vesting of restricted share awards

          302       3       (7,215 )                       (7,212 )           (7,212 )

Issuance of common stock under employee stock purchase plan

    66             1       2,434                         2,435             2,435  

Common stock repurchases

    (192 )     (104 )                 (15,315 )                 (15,315 )           (15,315 )

Dividend Class A common stock

                                  (8,189 )  

 

      (8,189 )           (8,189 )

Dividend Class B common stock

                                  (2,505 )  

 

      (2,505 )           (2,505 )

Foreign currency translation adjustment

                                        445       445             445  

Net income

                                  92,453             92,453             92,453  

Balance, March 31, 2022

    43,094       12,597     $ 568     $ 482,146     $ (52,248 )   $ 1,113,341     $ 1,232     $ 1,545,039           $ 1,545,039  

Stock options exercised and stock awards

    162             2       3,244                         3,246             3,246  

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

                      4,203                         4,203             4,203  

Vesting of restricted share awards

                      (1,423 )                       (1,423 )           (1,423 )

Common stock repurchases

    (448 )     (331 )                 (38,438 )                 (38,438 )           (38,438 )

Dividend Class A common stock

                                  (8,128 )  

 

      (8,128 )           (8,128 )

Dividend Class B common stock

                                  (2,521 )  

 

      (2,521 )           (2,521 )

Foreign currency translation adjustment

                                        (567 )     (567 )           (567 )

Reclassification of foreign currency translation related to equity method

                                        (601 )     (601 )           (601 )

Noncontrolling interest equity

                                                    17,828       17,828  

Net income

                                  110,227             110,227       446       110,673  

Balance, June 30, 2022

    42,808       12,266     $ 570     $ 488,170     $ (90,686 )   $ 1,212,919     $ 64     $ 1,611,037     $ 18,274     $ 1,629,311  

Stock options exercised and stock awards

    11                   227                         227             227  

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

                      3,554                         3,554             3,554  

Vesting of restricted share awards

          2             (31 )                       (31 )           (31 )

Issuance of common stock under employee stock purchase plan

    68             1       2,783                               2,784               2,784  

Common stock repurchases

    (513 )     (176 )                 (33,095 )                 (33,095 )           (33,095 )

Dividend Class A common stock

                                  (8,995 )  

 

      (8,995 )           (8,995 )

Dividend Class B common stock

                                  (2,698 )  

 

      (2,698 )           (2,698 )

Foreign currency translation adjustment

                                        (5,701 )     (5,701 )           (5,701 )

Net income

                                  90,376             90,376       287       90,663  

Balance, September 30, 2022

    42,374       12,092     $ 571     $ 494,703     $ (123,781 )   $ 1,291,602     $ (5,637 )   $ 1,657,458     $ 18,561     $ 1,676,019  

 

 

   

Common Stock

Shares

Outstanding

Class A Class B

   

$0.01 Par

Value

   

Additional

Paid -In

Capital

   

Treasury

Stock

   

Retained

Earnings

   

Accumulated

Other

Comprehensive Income (Loss)

   

Total

Rush Enterprises, Inc.

Shareholders’ Equity

   

Noncontrolling

Interest

   

Total

Shareholders’ Equity

 
                                                                                 

Balance, December 31, 2020

    42,504       12,470     $ 551     $ 437,646     $ (2,879 )   $ 831,850     $ 869     $ 1,268,037           $ 1,268,037  

Stock options exercised and stock awards

    298             3       5,416                         5,419             5,419  

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

                      11,520                         11,520             11,520  

Vesting of restricted share awards

          345       3       (6,780 )                       (6,777 )           (6,777 )

Issuance of common stock under employee stock purchase plan

    86             1       1,988                         1,989             1,989  

Common stock repurchases

    (3 )     (155 )                 (6,483 )                 (6,483 )           (6,483 )

Dividend Class A common stock

                                  (7,684 )  

 

      (7,684 )           (7,684 )

Dividend Class B common stock

                                  (2,380 )  

 

      (2,380 )           (2,380 )

Other comprehensive income

                                        255       255             255  

Net income

                                  45,333             45,333             45,333  

Balance, March 31, 2021

    42,885       12,660     $ 558     $ 449,790     $ (9,362 )   $ 867,119     $ 1,124     $ 1,309,229           $ 1,309,229  

Stock options exercised and stock awards

    219             2       3,926                         3,928             3,928  

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

                      3,683                         3,683             3,683  

Vesting of restricted share awards

                      (614 )                       (614 )           (614 )

Common stock repurchases

          (99 )                 (4,223 )                 (4,223 )           (4,223 )

Dividend Class A common stock

                                  (7,735 )  

 

      (7,735 )           (7,735 )

Dividend Class B common stock

                                  (2,425 )  

 

      (2,425 )           (2,425 )

Other comprehensive income

                                        312       312             312  

Net income

                                  58,044             58,044             58,044  

Balance, June 30, 2021

    43,104       12,561     $ 560     $ 456,785     $ (13,585 )   $ 915,003     $ 1,436     $ 1,360,199           $ 1,360,199  

Stock options exercised and stock awards

    22                   371                         371             371  

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

                      3,144                         3,144             3,144  

Vesting of restricted share awards

          2             (53 )                       (53 )           (53 )

Issuance of common stock under employee stock purchase plan

    63             1       2,159                         2,160             2,160  

Common stock repurchases

    (171 )     (88 )                 (11,229 )                 (11,229 )           (11,229 )

Dividend Class A common stock

                                  (8,199 )  

 

      (8,199 )           (8,199 )

Dividend Class B common stock

                                  (2,538 )  

 

      (2,538 )           (2,538 )

Other comprehensive income

                                        (471 )     (471 )           (471 )

Net income

                                  69,399             69,399             69,399  

Balance, September 30, 2021

    43,018       12,475     $ 561     $ 462,406     $ (24,814 )   $ 973,665     $ 965     $ 1,412,783           $ 1,412,783  

 

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

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

   

Nine Months Ended

 
   

September 30,

 
   

2022

   

2021

 
Cash flows from operating activities:                

Net income

  $ 293,789     $ 172,776  
Adjustments to reconcile net income to net cash provided by operating activities:                

Depreciation and amortization

    146,477       126,691  

Gain on sale of property and equipment

    (2,433 )     (1,157 )

Gain on joint venture transaction

    (12,500 )      

Gain on business acquisition

    (6,958 )      

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

    21,550       18,347  

Deferred income tax benefit

    7,921       (23,029 )

Change in accounts receivable, net

    (75,066 )     23,200  

Change in inventories, net

    (264,687 )     147,254  

Change in prepaid expenses and other, net

    875       (107 )

Change in trade accounts payable

    44,069       16,676  

Change in customer deposits

    9,650       (30,386 )

Change in accrued expenses

    25,464       (8,403 )

Other, net

    (4,832 )     (3,217 )

Net cash provided by operating activities

    183,319       438,645  
Cash flows from investing activities:                

Acquisition of property and equipment

    (175,243 )     (122,318 )

Proceeds from the sale of property and equipment

    7,014       2,576  

Business disposition

    27,500        

Business acquisition, net of cash acquired

    (15,754 )      

Other

    (11,691 )     (1,610 )

Net cash used in investing activities

    (168,174 )     (121,352 )
Cash flows from financing activities:                

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

    277,261       (157,440 )

Proceeds from long-term debt

    695,169       66,430  

Principal payments on long-term debt

    (788,757 )     (222,216 )

Principal payments on finance lease obligations

    (11,091 )     (10,620 )

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

    11,080       13,870  

Taxes paid related to net share settlement of equity awards

    (8,669 )     (7,447 )

Payments of cash dividends

    (33,123 )     (30,499 )

Common stock repurchased

    (85,270 )     (21,726 )

Net cash provided by (used in) financing activities

    56,600       (369,648 )

Net increase (decrease) in cash and cash equivalents

    71,745       (52,355 )

Effect of exchange rate on cash

    (372 )      

Cash and cash equivalents, beginning of period

    148,146       312,048  
                 

Cash and cash equivalents, end of period

  $ 219,519     $ 259,693  
                 
Supplemental disclosure of cash flow information:                

Cash paid during the period for:

               

Interest

  $ 12,966     $ 19,805  

Income taxes, net of refunds

  $ 74,320     $ 92,795  

Noncash investing and financing activities:

               

Assets acquired under finance leases

  $ 14,290     $ 21,442  

 

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

 

 

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, 2021. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

 

Recent Accounting Pronouncements

 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848),” which provides temporary optional guidance to ease the potential financial reporting burden of the expected market transition away from LIBOR. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedge accounting, and other transactions affected by reference rate reform if certain criteria are met through December 31, 2022. The Company does not expect this standard to have a material effect on its financial position, results of operations and related disclosures.

 

COVID-19 Risks and Uncertainties

 

While business conditions have improved significantly since the onset of the COVID-19 pandemic in the second quarter of 2020, our industry continues to be impacted by supply chain issues generally attributable to the COVID-19 pandemic that are negatively affecting new commercial vehicle production and the availability of aftermarket parts. The Company is unable to predict the impact that the COVID-19 pandemic will have on its future business and operating results due to numerous uncertainties, including the duration of the COVID-19 pandemic and its effect on global economic trends and the various supply chains serving the commercial vehicle industry.

 

Foreign Currency Transactions

 

The functional currency of the Company’s foreign subsidiary, Rush Truck Centres of Canada Limited (“RTC Canada”), is the local currency. Results of operations for RTC Canada are translated to USD using the average exchange rate on a monthly basis during each quarter. The assets and liabilities of RTC Canada are translated into USD using the exchange rate in effect on the balance sheet date. The related translation adjustments are recorded as a separate component of the Company’s Consolidated Statements of Shareholders’ Equity in accumulated other comprehensive income (loss).

 

 

2 Other Assets

 

Equity Method Investment

 

On February 25, 2019, the Company acquired 50% of the equity interest in RTC Canada, which acquired the operating assets of Tallman Group, the largest International Truck dealer in Canada. Prior to acquiring an additional 30% equity interest on May 2, 2022, for approximately $20.0 million, the Company accounted for the equity interest in RTC Canada using the equity method of accounting. Now that the Company owns an 80% equity interest in RTC Canada, the operating results of RTC Canada are consolidated in the Consolidated Statements of Income, the Consolidated Statements of Comprehensive Income and the Consolidated Balance Sheets, as of May 2, 2022. See Note 13 – Acquisitions in the Notes to the Financial Statements for further discussion.

 

On January 3, 2022, a subsidiary of Cummins, Inc. acquired a 50% equity interest in Natural Gas Fuel Systems, LLC (“NGFS”) from the Company for $27.5 million. NGFS previously conducted business as Momentum Fuel Technologies. The $12.5 million gain realized on the transaction is included in Other income on the Consolidated Statements of Income. The Company is accounting for the business as a joint venture and recognizes the investment using the equity method. As of September 30, 2022, the Company’s investment in NGFS was $14.4 million. The Company’s equity income in NGFS is included in the line item Other income on the Consolidated Statements of Income.

 

 

 

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. However, an uninsured or partially insured claim, or claim for which indemnification is not available, could have a material adverse effect on the Company’s financial condition or results of operations. As of September 30, 2022, the Company believes that there are no pending claims or litigation, individually or in the aggregate, that are reasonably likely to have a material adverse effect on its financial position or results of operations. 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,

 
   

2022

   

2021

   

2022

   

2021

 
Numerator:                                

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

  $ 90,376     $ 69,399     $ 293,056     $ 172,776  
Denominator:                                

Denominator for basic earnings per share – weighted average shares outstanding

    55,232       56,007       55,601       55,882  

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

    1,643       1,799       1,762       1,952  

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

    56,875       57,806       57,363       57,834  

Basic earnings per common share

  $ 1.64     $ 1.24    

$

5.27     $ 3.09  

Diluted earnings per common share and common share equivalents

  $ 1.59     $ 1.20    

$

5.11     $ 2.99  

 

Options to purchase shares of common stock that were outstanding for the three months and nine months ended September 30, 2022 and 2021 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive are as follows (in thousands):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Weighted average anti-dilutive options

    1,000       624       841       460  

 

 

5 Stock Options and Restricted Stock Awards

 

Valuation and Expense Information

 

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

 

Stock-based compensation expense, calculated using the Black-Scholes option-pricing model for employee stock options, and included in selling, general and administrative expense, was $3.6 million for the three months ended September 30, 2022, and $3.1 million for the three months ended September 30, 2021. Stock-based compensation expense was $21.5 million for the nine months ended September 30, 2022, and $18.3 million for the nine months ended September 30, 2021.

 

As of September 30, 2022, the Company had $11.8 million of unrecognized compensation expense related to non-vested employee stock options to be recognized over a weighted-average period of 2.3 years and $12.9 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.4 years.

 

 

 

6 Financial Instruments and Fair Value

 

The Company measures certain financial assets and liabilities at fair value on a recurring basis. Financial instruments consist primarily of cash, accounts receivable, accounts payable and floor plan notes payable. The carrying values of the Company’s financial instruments approximate fair value due either to their short-term nature or existence of variable interest rates, which approximate market rates. Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments as of September 30, 2022, and December 31, 2021. Thus, the carrying value of current assets and current liabilities approximates the fair value due to the short maturity of these items.

 

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, variable interest rate, credit rating, collateral and liquidity. Accordingly, the Company concluded that the valuation measurement inputs of its long-term debt represent, at its lowest level, current market interest rates available to the Company for similar debt and the Company’s current credit standing. The carrying amount of such debt approximates fair value.

 

 

7 Segment Information

 

The Company currently has one reportable business segment - the Truck Segment. The Truck Segment includes the Company’s operation of a network of commercial vehicle dealerships throughout the United States and Ontario, Canada 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, 2022 and 2021 (in thousands):

 

   

Truck

Segment

   

All

Other

   

Total

 
                         

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

                       
                         

Revenues from external customers

  $ 1,859,823     $ 4,463     $ 1,864,286  

Segment operating income

    126,770       267       127,037  

Segment income before taxes

    120,373       174       120,547  

Segment assets

    3,688,151       54,428       3,742,579  
                         

For the nine months ended September 30, 2022

                       
                         

Revenues from external customers

  $ 5,205,802     $ 12,927     $ 5,218,729  

Segment operating income

    368,596       963       369,559  

Segment income before taxes

    380,397       682       381,079  
                         

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

                       
                         

Revenues from external customers

  $ 1,261,885     $ 4,636     $ 1,266,521  

Segment operating income

    89,841       328       90,169  

Segment income before taxes

    91,595       254       91,849  

Segment assets

    2,722,614       54,715       2,777,329  
                         

For the nine months ended September 30, 2021

                       
                         

Revenues from external customers

  $ 3,801,675     $ 12,667     $ 3,814,342  

Segment operating income

    217,953       1,232       219,185  

Segment income before taxes

    222,218       1,017       223,235  

 

 

8 Income Taxes

 

The Company had unrecognized income tax benefits totaling $4.3 million as a component of accrued liabilities as of September 30, 2022 and December 31, 2021, the total of which, if recognized, would impact the Company’s effective tax rate. An unfavorable settlement may require a charge to income tax expense and a favorable resolution would be recognized as a reduction to income tax expense. The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. The Company had approximately $279,000 accrued for the payment of interest as of September 30, 2022 and December 31, 2021. No amounts were accrued for penalties.

 

The Company does not anticipate a significant change in the amount of unrecognized tax benefits in the next 12 months. As of September 30, 2022, the tax years ended December 31, 2018 through 2021 remained subject to audit by federal tax authorities, and the tax years ended December 31, 2017 through 2021, remained subject to audit by state tax authorities.

 

 

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

 

 

The following table summarizes the Company’s disaggregated revenue by revenue source, excluding lease and rental revenue, for the three months and nine months ended September 30, 2022 and 2021 (in thousands):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Commercial vehicle sales revenue

  $ 1,142,201     $ 729,344     $ 3,176,175     $ 2,274,332  

Parts revenue

    373,207       274,551       1,080,552       778,479  

Commercial vehicle repair service revenue

    248,923       188,469       683,139       545,804  

Finance revenue

    4,113       3,757       13,211       12,210  

Insurance revenue

    3,526       3,094       9,708