UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
RUSH ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Zip Code)
(
(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.
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).
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.
| 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
Indicated below is the number of shares outstanding of each of the issuer’s classes of common stock, as of July 29, 2022.
| Title of Class | Number of Shares Outstanding |
| Class A Common Stock, $.01 Par Value | |
| Class B Common Stock, $.01 Par Value |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
| | | |
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
| PART I. FINANCIAL INFORMATION | Page | ||
| Item 1. | Financial Statements | ||
| Consolidated Balance Sheets - June 30, 2022 (unaudited) and December 31, 2021 | 3 | ||
| 4 | |||
| 5 | |||
| 6 | |||
| Consolidated Statements of Cash Flows - For the Six Months Ended June 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 | 31 | |
| Item 4. | Controls and Procedures | 31 | |
| PART II. OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 31 | |
| Item 1A. | Risk Factors | 31 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 32 | |
| Item 3. | Defaults Upon Senior Securities | 32 | |
| Item 4. | Mine Safety Disclosures | 32 | |
| Item 5. | Other Information | 32 | |
| Item 6. | Exhibits | 33 | |
| SIGNATURES | 34 | ||
ITEM 1. Financial Statements.
RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2022 AND DECEMBER 31, 2021
(In Thousands, Except Shares)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Goodwill, net | ||||||||
| Other assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Floor plan notes payable | $ | $ | ||||||
| Current maturities of finance lease obligations | ||||||||
| Current maturities of operating lease obligations | ||||||||
| Trade accounts payable | ||||||||
| Customer deposits | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current maturities | ||||||||
| Finance lease obligations, net of current maturities | ||||||||
| Operating lease obligations, net of current maturities | ||||||||
| Other long-term liabilities | ||||||||
| Deferred income taxes, net | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, par value per share; shares authorized; shares outstanding in 2022 and 2021 | ||||||||
| Common stock, par value per share; Class A shares and Class B shares authorized; Class A shares and Class B shares outstanding in 2022; and Class A shares and Class B shares outstanding in 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost: Class A shares and Class B shares in 2022; and Class A shares and Class B shares in 2021 | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income | ||||||||
| Total Rush Enterprises, Inc. shareholders’ equity | ||||||||
| Noncontrolling interest | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
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 June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| New and used commercial vehicle sales | $ | $ | $ | $ | ||||||||||||
| Aftermarket products and services sales | ||||||||||||||||
| Lease and rental sales | ||||||||||||||||
| Finance and insurance | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of products sold | ||||||||||||||||
| New and used commercial vehicle sales | ||||||||||||||||
| Aftermarket products and services sales | ||||||||||||||||
| Lease and rental sales | ||||||||||||||||
| Total cost of products sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Gain on sale of assets | ||||||||||||||||
| Operating income | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest (income) expense, net | ( | ) | ||||||||||||||
| Income before taxes | ||||||||||||||||
| Income tax provision | ||||||||||||||||
| Net income | ||||||||||||||||
| Less: Net income attributable to noncontrolling interest | – | – | ||||||||||||||
| Net income attributable to Rush Enterprises, Inc. | $ | $ | $ | $ | ||||||||||||
| Net income attributable to Rush Enterprises, Inc. per share of common stock: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Dividends declared per common share | $ | $ | $ | $ | ||||||||||||
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 | Six Months Ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ||||||||||||
| Reclassification of currency translation related to equity method accounting | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (loss) attributable to Rush Enterprises, Inc. | ( | ) | ( | ) | ||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||
| Comprehensive income attributable to Rush Enterprises, Inc. | ||||||||||||||||
| Comprehensive income attributable to noncontrolling interest | ||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||
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 | $0.01 Par | Additional Paid -In | Treasury | Retained | Accumulated Other Comprehensive | Total Rush Enterprises, Inc. Shareholders’ | Noncontrolling | Total Shareholders’ | ||||||||||||||||||||||||||||||||
| Class A | Class B | Value | Capital | Stock | Earnings | Income (Loss) | Equity | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | – | $ | ||||||||||||||||||||||||||||||
| Stock options exercised and stock awards | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Stock-based compensation related to stock options, restricted shares and employee stock purchase plan | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||
| Vesting of restricted share awards | – | ( | ) | – | – | – | ( | ) | – | ( | ) | |||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Common stock repurchases | ( | ) | ( | ) | – | – | ( | ) | – | – | ( | ) | – | ( | ) | |||||||||||||||||||||||||
| Dividend Class A common stock | – | – | – | – | – | ( | ) | –– | ( | ) | – | ( | ) | |||||||||||||||||||||||||||
| Dividend Class B common stock | – | – | – | – | – | ( | ) | –– | ( | ) | – | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||
| Net income | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | – | $ | ||||||||||||||||||||||||||||||
| Stock options exercised and stock awards | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Stock-based compensation related to stock options, restricted shares and employee stock purchase plan | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||
| Vesting of restricted share awards | – | – | – | ( | ) | – | – | – | ( | ) | – | ( | ) | |||||||||||||||||||||||||||
| Common stock repurchases | ( | ) | ( | ) | – | – | ( | ) | – | – | ( | ) | – | ( | ) | |||||||||||||||||||||||||
| Dividend Class A common stock | – | – | – | – | – | ( | ) | –– | ( | ) | – | ( | ) | |||||||||||||||||||||||||||
| Dividend Class B common stock | – | – | – | – | – | ( | ) | –– | ( | ) | – | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | ( | ) | ( | ) | – | ( | ) | |||||||||||||||||||||||||||
| Reclassification of foreign currency translation related to equity method | – | – | – | – | – | – | ( | ) | ( | ) | – | ( | ) | |||||||||||||||||||||||||||
| Noncontrolling interest equity | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
| Net income | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Common Stock Shares Outstanding | $0.01 Par | Additional Paid -In | Treasury | Retained | Accumulated Other Comprehensive | Total Rush Enterprises, Inc. Shareholders’ | Noncontrolling | Total Shareholders’ | ||||||||||||||||||||||||||||||||
| Class A | Class B | Value | Capital | Stock | Earnings | Income (Loss) | Equity | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | – | $ | ||||||||||||||||||||||||||||||
| Stock options exercised and stock awards | – | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation related to stock options, restricted shares and employee stock purchase plan | – | – | – | |||||||||||||||||||||||||||||||||||||
| Vesting of restricted share awards | ( | ) | ( | ) | – | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | – | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | ( | ) | ( | ) | ( | ) | ( | ) | – | ( | ) | |||||||||||||||||||||||||||||
| Dividend Class A common stock | – | – | ( | ) | –– | ( | ) | – | ( | ) | ||||||||||||||||||||||||||||||
| Dividend Class B common stock | – | – | ( | ) | –– | ( | ) | – | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive income | – | – | – | |||||||||||||||||||||||||||||||||||||
| Net income | – | – | – | |||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | – | $ | ||||||||||||||||||||||||||||||
| Stock options exercised and stock awards | – | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation related to stock options, restricted shares and employee stock purchase plan | – | – | – | |||||||||||||||||||||||||||||||||||||
| Vesting of restricted share awards | – | – | ( | ) | ( | ) | – | ( | ) | |||||||||||||||||||||||||||||||
| Common stock repurchases | ( | ) | ( | ) | ( | ) | – | ( | ) | |||||||||||||||||||||||||||||||
| Dividend Class A common stock | – | – | ( | ) | –– | ( | ) | – | ( | ) | ||||||||||||||||||||||||||||||
| Dividend Class B common stock | – | – | ( | ) | –– | ( | ) | – | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive income | – | – | – | |||||||||||||||||||||||||||||||||||||
| Net income | – | – | – | |||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | – | $ | ||||||||||||||||||||||||||||||
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)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities- | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of property and equipment, net | ( | ) | ( | ) | ||||
| Gain on joint venture transaction | ( | ) | ||||||
| Gain on business acquisition | ( | ) | ||||||
| Stock-based compensation expense related to employee equity awards and employee stock purchases | ||||||||
| Deferred income tax expense | ( | ) | ||||||
| Change in accounts and notes receivable, net | ( | ) | ||||||
| Change in inventories, net | ( | ) | ||||||
| Change in prepaid expenses and other, net | ( | ) | ( | ) | ||||
| Change in trade accounts payable | ||||||||
| Change in customer deposits | ( | ) | ( | ) | ||||
| Change in accrued expenses | ( | ) | ||||||
| Other, net | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from the sale of property and equipment | ||||||||
| Business disposition | ||||||||
| Business acquisition, net of cash acquired | ( | ) | ||||||
| Other | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Draws (payments) on floor plan notes payable – non-trade, net | ( | ) | ||||||
| Proceeds from long-term debt | ||||||||
| Principal payments on long-term debt | ( | ) | ( | ) | ||||
| Principal payments on finance lease obligations | ( | ) | ( | ) | ||||
| Proceeds from issuance of shares relating to equity awards and employee stock purchases | ||||||||
| Taxes paid related to net share settlement of equity awards | ( | ) | ( | ) | ||||
| Payments of cash dividends | ( | ) | ( | ) | ||||
| Common stock repurchased | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes, net of refunds | $ | $ | ||||||
| Noncash activities: | ||||||||
| Assets acquired under finance leases | $ | $ | ||||||
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.
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 the quarter. The assets and liabilities of RTC Canada are translated into USD using the exchange rate in effect on the balance sheet date. The related translation adjustments are recorded as a separate component of 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
On January 3, 2022, a subsidiary of Cummins, Inc. acquired a
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 June 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 amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Numerator for basic and diluted earnings per share – Net income available to common shareholders | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| Denominator for basic earnings per share – weighted average shares outstanding | ||||||||||||||||
| Effect of dilutive securities– | ||||||||||||||||
| Employee stock options and restricted stock awards | ||||||||||||||||
| Denominator for diluted earnings per share – adjusted weighted average shares outstanding and assumed conversions | ||||||||||||||||
| Basic earnings per common share | $ | $ | $ | $ | ||||||||||||
| Diluted earnings per common share and common share equivalents | $ | $ | $ | $ | ||||||||||||
Options to purchase shares of common stock that were outstanding for the three months and six months ended June 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 June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted average anti-dilutive stock options | ||||||||||||||||
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 $
As of June 30, 2022, the Company had $
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 June 30, 2022, and December 31, 2021. The carrying value of current assets and current liabilities approximates the fair value due to the short maturity of these items.
The fair value of the Company’s long-term debt is based on secondary market indicators. Because the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including remaining maturities, interest rate, credit rating, collateral and liquidity. Accordingly, the Company concluded that the valuation measurement inputs of its long-term debt represent, at its lowest level, current market interest rates available to the Company for similar debt and the Company’s current credit standing. The carrying amount of such debt approximates fair value.
7 – Segment Information
The Company currently has 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 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 June 30, 2022 and 2021 (in thousands):
| Truck Segment | All Other | Total | ||||||||||
| As of and for the three months ended June 30, 2022 | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment operating income | ||||||||||||
| Segment income before taxes | ||||||||||||
| Segment assets | ||||||||||||
| For the six months ended June 30, 2022 | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment operating income | ||||||||||||
| Segment income before taxes | ||||||||||||
| As of and for the three months ended June 30, 2021 | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment operating income | ||||||||||||
| Segment income before taxes | ||||||||||||
| Segment assets | ||||||||||||
| For the six months ended June 30, 2021 | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment operating income | ||||||||||||
| Segment income before taxes | ||||||||||||
8 – Income Taxes
The Company had unrecognized income tax benefits totaling $
The Company does not anticipate a significant change in the amount of unrecognized tax benefits in the next 12 months. As of June 30, 2022, the tax years ended December 31, through 2021 remained subject to audit by federal tax authorities, and the tax years ended December 31, 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 six months ended June 30, 2022 and 2021 (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Commercial vehicle sales revenue | $ | $ | $ | $ | ||||||||||||
| Parts revenue | ||||||||||||||||
| Commercial vehicle repair service revenue | ||||||||||||||||
| Finance revenue | ||||||||||||||||
| Insurance revenue | ||||||||||||||||
| Other revenue | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
All of the Company's performance obligations and associated revenues are generally transferred to customers at a point in time. The Company did not have any material contract assets or contract liabilities on the balance sheet as of June 30, 2022 or December 31, 2021. 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
Lease of Vehicles as Lessor
The Company primarily leases commercial vehicles that it owns to customers over periods of to years. The Company does not separate lease and nonlease components. Nonlease components typically consist of maintenance and licensing for the commercial vehicle. The variable nonlease components are generally based on mileage. Some leases contain an option for the lessee to purchase the commercial vehicle at the end of the lease term.
The Company’s policy is to depreciate its lease and rental fleet using a straight-line method over each customer’s contractual lease term. The lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term. This policy results in the Company realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term.
Sales-type leases are recognized by the Company as lease receivables. The lessee obtains control of the underlying asset and the Company recognizes sales revenue upon lease commencement. The receivable for sales-type leases as of June 30, 2022 was $
Lease and rental income during the three and six months ended June 30, 2022 and June 30, 2021 consisted of the following (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Minimum rental payments | $ | $ | $ | $ | ||||||||||||
| Nonlease payments | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
11 – Accumulated Other Comprehensive Income
The following table shows the components of accumulated other comprehensive income (loss) (in thousands):
| Balance as of December 31, 2021 | $ | |||
| Foreign currency translation adjustment | ||||
| Balance as of March 31, 2022 | $ | |||
| Reclassification of currency translation related to equity method of RTC Canada | ( | ) | ||
| Foreign currency translation adjustment | ( | ) | ||
| Balance as of June 30, 2022 | $ |
The functional currency of the Company’s foreign subsidiary, RTC Canada, is its local currency. Results of operations of RTC Canada are translated in USD using the average exchange rates on a monthly basis during the year. The assets and liabilities of RTC Canada are translated into USD using the exchange rates in effect on the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive loss.
The Company reclassified the foreign currency translation adjustment related to its previously held equity investment in RTC Canada into net income upon its acquisition of a majority equity interest according to ASC 830-30, Foreign Currency Matters.
12 – Accounts Receivable and Allowance for Credit Losses
The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected. Under Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Company is required to remeasure expected credit losses for financial instruments held on the reporting date based on historical experience, current conditions and reasonable forecasts.
Accounts receivable consists primarily of commercial vehicle sales receivables, manufacturers’ receivables, leasing and rental receivables, parts and service receivables and other trade receivables. The Company maintains an allowance for credit losses based on the probability of default, its historical rate of losses, aging and current economic conditions. The Company writes off account balances when it has exhausted reasonable collection efforts and determined that the likelihood of collection is remote. These write-offs are charged against the allowance for credit losses.
The following table summarizes the changes in the allowance for credit losses (in thousands):
| Balance December 31, 2021 | Provision for the Six Months Ended June 30, 2022 | Write offs Against Allowance, net of Recoveries | Balance June 30, 2022 | |||||||||||||
| Commercial vehicle receivables | $ | $ | $ | − | $ | |||||||||||
| Manufacturers’ receivables | ( | ) | ||||||||||||||
| Leasing, parts and service receivables | ( | ) | ||||||||||||||
| Other receivables | − | ( | ) | |||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
13 – Acquisitions
On December 13, 2021, the Company completed the acquisition of certain of the assets of the Summit Truck Group, LLC and certain of its subsidiaries and affiliates (collectively, “Summit”) which included full-service commercial vehicle dealerships and Idealease franchises in Arkansas, Kansas, Missouri, Tennessee and Texas. The acquisition included Summit’s dealerships representing International, IC Bus, Idealease, Isuzu and other commercial vehicle manufacturers for a purchase price of approximately $
The purchase price allocation has not yet been finalized for the Summit acquisition. The Company is currently working with Summit to obtain additional information that existed at the time of the acquisition related to property and equipment, inventory and valuation of intangible assets. Management has recorded the purchase price allocations based upon currently available information about Summit.
The operations of Summit are included in the accompanying consolidated financial statements from the date of the acquisition. The preliminary purchase price was allocated based on the fair values of the assets and liabilities at the date of acquisition as follows (in thousands):
| Goodwill | $ | |||
| Franchise rights | ||||
| Inventory | ||||
| Property and equipment, including real estate | ||||
| Other | ||||
| Total | $ |
The goodwill of $
On May 2, 2022, the Company completed the acquisition of an additional
As of May 2, 2022, the Company established a noncontrolling interest related to the minority holders. The fair value of the
The preliminary purchase price was allocated based on the fair values of the assets and liabilities at the date of acquisition as follows (in thousands):
| Cash | $ | |||
| Accounts receivable | ||||
| Inventory | ||||
| Property and equipment, including real estate | ||||
| Floor plan notes payable | ( | ) | ||
| Trade payables | ( | ) | ||
| Customer deposits | ( | ) | ||
| Accrued liabilities | ( | ) | ||
| Notes payable | ( | ) | ||
| Goodwill | ||||
| Other | ||||
| Equity investment in RTC Canada | ( | ) | ||
| Noncontrolling interest | ( | ) | ||
| Gain on equity method investment | ( | ) | ||
| Total | $ |
The purchase price allocation has not yet been finalized. The Company is currently working with RTC Canada to obtain additional information that existed at the time of the acquisition related to property and equipment, inventory and valuation of intangible assets. Management has recorded the purchase price allocations based upon currently available information about RTC Canada. The goodwill of $
Prior to May 2, 2022, the Company accounted for its
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements contained in this Form 10-Q (or otherwise made by the Company or on the Company’s behalf from time to time in other reports, filings with the Securities and Exchange Commission (“SEC”), news releases, conferences, website postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act of 1934, as amended (the “Exchange Act”), notwithstanding that such statements are not specifically identified. Forward-looking statements include statements about the Company’s financial position, business strategy and plans and objectives of management of the Company for future operations, as well as statements regarding the effects COVID-19 may have on our business and financial results. These forward-looking statements reflect the best judgments of the Company about the future events and trends based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management. Use of the words “may,” “should,” “continue,” “plan,” “potential,” “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements reflect our current view of the Company with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Please read Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for a discussion of certain of those risks. Other unknown or unpredictable factors could also have a material adverse effect on future results. Although the Company believes that its expectations are reasonable as of the date of this Form 10-Q, it can give no assurance that such expectations will prove to be correct. The Company does not intend to update or revise any forward-looking statements unless securities laws require it to do so, and the Company undertakes no obligation to publicly release any revisions to forward-looking statements, whether because of new information, future events or otherwise.
The following comments should be read in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.
Note Regarding Trademarks Commonly Used in the Company’s Filings
Peterbilt® is a registered trademark of Peterbilt Motors Company. PACCAR® is a registered trademark of PACCAR, Inc. PacLease® is a registered trademark of PACCAR Leasing Corporation. Navistar® is a registered trademark of Navistar International Corporation. International® is a registered trademark of Navistar International Transportation Corp. Idealease is a registered trademark of Idealease, Inc. aka Idealease of North America, Inc. Blue Bird® is a registered trademark of Blue Bird Investment Corporation. IC Bus® is a registered trademark of IC Bus, LLC. Hino® is a registered trademark of Hino Motors, Ltd. Isuzu® is a registered trademark of Isuzu Motors Limited. Ford Motor Credit Company® is a registered trademark of Ford Motor Company. Ford® is a registered trademark of Ford Motor Company. Cummins® is a registered trademark of Cummins, Inc. This report contains additional trade names or trademarks of other companies. Our use of such trade names or trademarks should not imply any endorsement or relationship with such companies.
General
Rush Enterprises, Inc. was incorporated in Texas in 1965 and consists of one reportable segment, the Truck Segment, and conducts business through its subsidiaries. Our principal offices are located at 555 IH 35 South, Suite 500, New Braunfels, Texas 78130.
We are a full-service, integrated retailer of commercial vehicles and related services. The Truck Segment includes our operation of a network of commercial vehicle dealerships under the name “Rush Truck Centers.” Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, IC Bus and Blue Bird. Through our strategically located network of Rush Truck Centers, we provide one-stop service for the needs of our commercial vehicle customers, including retail sales of new and used commercial vehicles, aftermarket parts sales, service and repair facilities, financing, leasing and rental, and insurance products.
Our Rush Truck Centers are principally located in high traffic areas throughout the United States and Ontario, Canada. Since commencing operations as a Peterbilt heavy-duty truck dealer in 1966, we have grown to operate over 125 franchised Rush Truck Centers in 23 states. In 2019, we purchased a 50% equity interest in an entity in Canada, Rush Truck Centres of Canada Limited (“RTC Canada”) and on May 2, 2022, we purchased an additional 30% equity interest in RTC Canada that increased our equity interest to 80%. RTC Canada currently owns and operates 15 International dealership locations in Ontario. Prior to acquiring the additional 30%, we accounted for the equity interest in RTC Canada using the equity method of accounting. Now, the operating results of RTC Canada are consolidated in the Consolidated Statements of Operations, the Statements of Comprehensive Income, the Consolidated Balance Sheets and commercial vehicle unit sales data as of May 2, 2022.
Our business strategy consists of providing solutions to the commercial vehicle industry through our network of commercial vehicle dealerships. We offer an integrated approach to meeting customer needs by providing service, parts and collision repairs in addition to new and used commercial vehicle sales and leasing, plus financial services, vehicle upfitting, CNG fuel systems through our joint venture with Cummins and vehicle telematics products. We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers as we expand our product offerings and extend our dealership network through strategic acquisitions of new locations and opening new dealerships in our existing areas of operation to enable us to better serve our customers.
The COVID-19 Pandemic and Its Impact on Our Business
While business conditions have improved significantly since the onset of the Covid-19 pandemic in the second quarter of 2020, our industry continues to be impacted by supply chain issues generally believed to be attributable to the COVID-19 pandemic that are negatively affecting new commercial vehicle production and the availability of aftermarket parts.
Outlook
A.C.T. Research Co., LLC (“A. C.T. Research”), a commercial vehicle industry data and forecasting service provider, currently forecasts new U.S. Class 8 retail truck sales to be 253,100 units in 2022, which would represent an 11.3% increase compared to 2021. We expect our U.S. market share of new Class 8 truck sales to range between 6.1% and 6.4% in 2022. This market share percentage would result in the sale of approximately 15,500 to 16,200 new Class 8 trucks in 2022. We expect to sell approximately 350 to 380 additional new Class 8 trucks in Canada in the third and fourth quarters of 2022.
With respect to new U.S. Class 4-7 retail commercial vehicle sales, A.C.T. Research currently forecasts sales to be 230,500 units in 2022, which would represent a 7.7% decrease compared to 2021. We expect our U.S. market share of new Class 4 through 7 commercial vehicle sales to range between 4.6% and 4.8% in 2022. This market share percentage would result in the sale of approximately 10,500 to 11,000 new Class 4 through 7 commercial vehicles in 2022. We expect to sell approximately 120 to 130 additional new Class 5 through 7 commercial vehicles in Canada in the third and fourth quarters of 2022.
We expect to sell approximately 1,700 light-duty vehicles and approximately 7,000 to 7,500 used commercial vehicles in 2022. We expect lease and rental revenue to increase 28% to 32% during 2022, compared to 2021.
We believe our Aftermarket Products and Services revenues will increase 25% to 30% in 2022, compared to 2021.
The above projections for new commercial vehicle sales will depend on our ability to obtain commercial vehicles from the manufacturers we represent and such projections could be negatively impacted by manufacturer allocation decisions and supply chain issues affecting manufacturers’ production. In addition, we are monitoring inflation and rising interest rates, which may negatively impact consumer spending and capital expenditures across a variety of industries we support.
All of the above projections for new commercial vehicle sales, lease and rental revenues and Aftermarket Products and Services revenues include the dealership and Idealease locations that we acquired on December 13, 2021, when we completed the acquisition of certain of the assets of the of Summit Truck Group, LLC and certain of its subsidiaries and affiliates (collectively, “Summit”). In addition, all of the above projections for new commercial vehicle sales, lease and rental revenues and Aftermarket Products and Services revenues include RTC Canada.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. We believe the following accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined by specific identification of new and used commercial vehicle inventory and by the first-in, first-out method for tires, parts and accessories. As the market value of our inventory typically declines over time, reserves are established based on historical loss experience and market trends. These reserves are charged to cost of sales and reduce the carrying value of our inventory on hand. An allowance is provided when it is anticipated that cost will exceed net realizable value less a reasonable profit margin.
Purchase Price Allocation, Intangible Assets and Goodwill
Purchase price allocation for business combinations and asset acquisitions requires the use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. We determine whether substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the single asset or group of assets, as applicable, is not a business. If not, we determine whether the single asset or group of assets, as applicable, meets the definition of a business.
In connection with our business combinations, we recorded certain intangible assets, including franchise rights. We periodically review the estimated useful lives and fair values of our identifiable intangible assets, taking into consideration any events or circumstances that might result in a diminished fair value or revised useful life.
The excess purchase price over the fair value of assets acquired is recorded as goodwill. We test goodwill for impairment annually in the fourth quarter, or whenever events or changes in circumstances indicate an impairment may have occurred. Because we operate a single reporting unit, the Truck Segment, the impairment test is performed at that level by comparing the estimated fair value of the reporting unit to the carrying value of the reporting unit. We estimate the fair value of the reporting unit using a "step one" analysis utilizing a fair-value-based approach that uses a discounted cash flow analysis of projected future results to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Determining the fair value of goodwill is subjective in nature and often involves the use of estimates and assumptions including, without limitation, use of estimates of future prices and volumes for our products, capital needs, economic trends and other factors which are inherently difficult to forecast. If actual results, or the plans and estimates used in future impairment analyses are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges in a future period. The annual impairment test was performed in the fourth quarter of 2021. No impairment of goodwill was identified during 2021 and no circumstances or events occurred in the first six months of 2022 that would require a test for impairment.
Insurance Accruals
We are partially self-insured for a portion of the claims related to our property and casualty insurance programs, which requires us to make estimates regarding expected losses to be incurred. We engage a third-party administrator to assess any open claims and we adjust our accrual accordingly on a periodic basis. We are also partially self-insured for a portion of the claims related to our workers’ compensation and medical insurance programs. We use actuarial information provided from third-party administrators to calculate an accrual for claims incurred, but not reported, and for the remaining portion of claims that have been reported.
Changes in the frequency, severity and development of existing claims could influence our reserve for claims and financial position, results of operations and cash flows. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to calculate our self-insured liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.
Accounting for Income Taxes
Management’s judgment is required to determine the provisions for income taxes and to determine whether deferred tax assets will be realized in full or in part. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. When it is more likely than not that all or some portion of specific deferred income tax assets will not be realized, a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable. Accordingly, the facts and financial circumstances impacting deferred income tax assets are reviewed quarterly and management’s judgment is applied to determine the amount of valuation allowance required, if any, in any given period.
Our income tax returns are periodically audited by tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions. In evaluating the exposures associated with our various tax filing positions, we adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.
Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. Our effective income tax rate is also affected by changes in tax law, the level of earnings and the results of tax audits. Although we believe that the judgments and estimates are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material. An unfavorable tax settlement would generally require use of our cash and result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution. Our income tax expense includes the impact of reserve provisions and changes to reserves that we consider appropriate, as well as related interest.
Revenue Recognition
We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASU 2014-09, “Revenue from Contracts with Customers (“Topic 606”), we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations. We then assess whether each promised good or service is distinct and recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Leases
We lease commercial vehicles and real estate under finance and operating leases. We determine whether an arrangement is a lease at its inception. For leases with terms greater than twelve months, we record a lease asset and liability at the present value of lease payments over the term. Many of our leases include renewal options and termination options that are factored into our determination of lease payments when appropriate.
When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.
We lease commercial vehicles that we own to customers. Lease and rental revenue is recognized over the period of the related lease or rental agreement. Variable rental revenue is recognized when it is earned.
Allowance for Credit Losses
All trade receivables are reported on the consolidated balance sheet at their cost basis adjusted for any write-offs and net of allowances for credit losses. We maintain allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of our receivables after considering current market conditions and estimates for supportable forecasts, when appropriate. The estimate is a result of our ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in each of our receivable portfolios (commercial vehicle receivables, manufacturers’ receivables, parts and service receivables, leasing receivables and other trade receivables). For trade receivables, we use the probability of default and our historical loss experience rates by portfolio and apply them to a related aging analysis while also considering customer and economic risk where appropriate. Determination of the proper amount of allowances by portfolio requires us to exercise our judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowances take into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, collection experience, current economic conditions, estimates for supportable forecasts (when appropriate) and credit risk characteristics.
Foreign Currency Transactions
The functional currency of our foreign subsidiary, RTC Canada, is its local currency. Results of operations for RTC Canada are translated in USD using the average exchange rate on a monthly basis during the quarter. The assets and liabilities of RTC Canada are translated into USD using the exchange rate in effect on the balance sheet date. The related translation adjustments are recorded as a separate component of our Consolidated Statements of Shareholders’ Equity in the line item Accumulated other comprehensive income.
Results of Operations
The following discussion and analysis includes our historical results of operations for the three months and six months periods ended June 30, 2022 and 2021.
The following table sets forth certain financial data as a percentage of total revenues for the periods indicated:
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Revenue |
||||||||||||||||
| New and used commercial vehicle sales |
61.3 | % |
60.6 | % |
60.6 | % |
60.6 | % |
||||||||
| Aftermarket products and services sales |
33.4 | 33.8 | 34.0 | 33.8 | ||||||||||||
| Lease and rental sales |
4.5 | 4.7 | 4.5 | 4.7 | ||||||||||||
| Finance and insurance |
0.4 | 0.6 | 0.5 | 0.6 | ||||||||||||
| Other |
0.4 | 0.3 | 0.4 | 0.3 | ||||||||||||
| Total revenues |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
| Cost of products sold |
79.1 | 79.4 | 78.5 | 79.8 | ||||||||||||
| Gross profit |
20.9 |
20.6 |
21.5 | 20.2 | ||||||||||||
| Selling, general and administrative |
12.6 | 14.0 | 13.4 | 14.1 | ||||||||||||
| Depreciation and amortization |
0.8 | 1.0 | 0.8 | 1.1 | ||||||||||||
| Gain (loss) on sale of assets |
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
| Operating income |
7.5 | 5.6 | 7.3 | 5.0 | ||||||||||||
| Other income |
0.5 | 0.0 | 0.7 | 0.1 | ||||||||||||
| Interest (income) expense, net |
0.2 | 0.0 | 0.2 | 0.0 | ||||||||||||
| Income before income taxes |
7.8 | 5.6 | 7.8 | 5.1 | ||||||||||||
| Provision for income taxes |
1.7 | 1.2 | 1.7 | 1.1 | ||||||||||||
| Net income |
6.1 | 4.4 | 6.1 | 4.0 | ||||||||||||
| Less: Net income attributable to noncontrolling interest |
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
| Net income attributable to Rush Enterprises, Inc. |
6.1 | % |
4.4 | % |
6.1 | % |
4.0 | % |
||||||||
The following table sets forth for the periods indicated the percent of gross profit by revenue source:
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Gross Profit: |
||||||||||||||||
| New and used commercial vehicle sales |
27.8 | % |
28.6 | % |
28.4 | % |
28.7 | % |
||||||||
| Aftermarket products and services sales |
61.7 | 62.2 | 61.2 | 62.5 | ||||||||||||
| Lease and rental sales |
6.7 | |||||||||||||||