– New Accounting Pronouncements

Leases

February 2016,

the FASB issued ASU

No.

2016

02,

“

Leases (

“

Topic

842

”

” which is intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In order to meet that objective, the new standard requires recognition of the assets and liabilities that arise from leases. A lessee will be required to recognize on the balance sheet the assets and liabilities for leases with lease terms of more than

months. The standard requires lessees to classify leases as either finance or operating leases. This classification will determine whether the related expense will be recognized based on asset amortization and interest on the obligation or on a straight-line basis over the term of the lease.

The Company will adopt Topic

842

January 1, 2019.

The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application. While the recognition of right-of-use assets and related liabilities will have a material effect on the Company’s Consolidated Balance Sheets, the Company does

not

expect a material impact on its Consolidated Statements of Operations and Comprehensive Income. The FASB also issued ASU

No.

2018

01,

Leases

: Land Easement Practical Expedient for Transition to Topic

842

which provides guidance on specific transition issues. The Company is in the process of analyzing its lease portfolio and continues to evaluate the full impact of the new standards, including the impact on its business processes, systems, and internal controls.

Revenue from Contracts with Customers

May 2014,

the FASB issued ASU

No.

2014

09,

“

Revenue from Contracts with Customers

(

“

Topic

606

”

)

,” which amended the accounting standards for revenue recognition. Topic

606

is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled to when products are transferred to customers. The Company adopted Topic

606

January 1, 2018

and is applying the modified retrospective method. There was

not

a material impact to revenues as a result of applying Topic

606

for the

three

months ended

March

31,

2018,

and there have

not

been significant changes to our business processes, systems, or internal controls as a result of implementing the standard. Adoption of the new standard does

not

materially change the timing or amount of revenue recognized in the Company’s Consolidated Statements of Operations and Comprehensive Income.

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

The following table summarizes the Company’s disaggregated revenue by revenue source for the

three

months ended

March 31, 2018 (

in thousands):

Commercial vehicle sales revenue	$	773,100
Parts revenue		223,354
Commercial vehicle repair service revenue		176,941
Finance revenue		2,336
Insurance revenue		2,405
Other revenue		5,121
Total revenue	$	1,183,257

All of the Company's performance obligations and associated revenues are generally transferred to customers at a point in time. The Company does

not

have any material contract assets or contract liabilities on the Balance Sheet as of

March 31, 2018.

Revenues related to commercial vehicle sales, parts sales, commercial vehicle repair service, finance and the majority of other revenue are related to the Truck Segment.

For the sale of new and commercial vehicles, revenue is recognized at a point in time when control is transferred to the customer, which is when delivery of the commercial vehicle occurs. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the commercial vehicle. When control is transferred to the customer, the Company has an unconditional right to payment and a receivable is recorded for any consideration

not

received.

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

Revenue from the sale of parts is recognized when the Company transfers control of the goods to the customer and consideration has been received in the form of cash or a receivable from the customer. We give our customers the right to return eligible parts, and we estimate the expected returns based on an analysis of historical experience and record an allowance for estimated returns, which has historically

not

been material.

Revenue from the sale of commercial vehicle repair service is recognized when the service performed by the Company on a customer’s vehicle is complete and the customer accepts the repairs. Since the Company does

not

have an enforceable right to payment while the repair is being performed, revenue is recognized when the repair is complete. After a customer's acceptance, the Company has

remaining obligations to transfer goods or services to the customer and consideration has been received in the form of cash or a receivable from the customer.

Any remaining performance obligations represent service orders for which work has

not

been completed. The Company’s service contracts are predominantly short-term in nature with a contract term of

one

month or less. For those contracts, the Company has utilized the practical expedient in Topic

606

exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of

one

year or less.

The Company receives commissions from

third

-party lenders for arranging customer financing for the purchase of commercial vehicles. This is deemed to be a single performance obligation which is satisfied when a financing agreement is executed and accepted by the financing provider. Once the contract has been accepted by the financing provider, the Company’s performance obligation has been satisfied, and generally, the Company has

further obligations under the contract. The Company is the agent in this transaction, as it does

not

have control over the acceptance of the customer’s financing arrangement by the financing provider. Consideration paid to the Company by the financing provider is based on the agreement between the Company and the financing provider.

The Company receives commissions from

third

-party insurance companies for arranging insurance coverage for customers. This is deemed to be a single performance obligation which is satisfied when the insurance coverage is bound. The Company has

further obligations under the contract. The Company is the agent in this transaction as it does

not

have control over the insurance coverage provided by the insurance carrier. Consideration paid to the Company by the insurance provider is based on the agreement between the Company and the insurance provider.

Revenues from finance and insurance products are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from chargebacks if the contract term is

not

fulfilled. Chargebacks for commissions from financing companies represent the estimated amounts if a financing contract is terminated before the customer has made

six

monthly payments. Chargebacks for commissions from insurance companies represent the estimated amounts if an insurance contract is terminated before its contractual life. Chargeback reserve amounts are based on historical chargebacks and have historically been immaterial. The Company does

not

have right to retrospective commissions based on future profitability of finance and insurance contracts arranged.

Other revenue is mostly documentation fees related to the sale of a truck that are charged to the customer and recognized as other revenue when a truck is sold. We recognize the documentation fees at a point in time when the truck is transferred to the customer.