Note 9 - Equity Method Investment

6 Months Ended

Jun. 30, 2012

Note 9. Equity Method Investment

On May 31, 2011, we acquired a 49.0% interest in Transport Enterprise Leasing, LLC ("TEL") for $1.5 million in cash. Additionally, TEL’s majority owners are eligible to receive an earn-out of up to $4.5 million over two years, of which $1.0 million was paid in the second quarter of 2012 based upon 2011 performance. Earn-out payments increase our investment balance. TEL is a tractor and trailer equipment leasing company and used equipment reseller. We have not guaranteed any of TEL’s debt and have no obligation to provide funding or assets. Under the acquisition agreement, we have an option to acquire 100% of TEL between January 1, 2013 and May 31, 2016, by purchasing the majority owners’ interest based on a multiple of TEL’s average earnings before income and taxes, adjusted for certain items including cash and debt balances as of the acquisition date. Subsequent to May 31, 2016, TEL’s majority owners’ have the option to acquire our interest based on the same terms detailed above. During the six month period ended June 30, 2012, we sold tractors and trailers to TEL for $5.6 million and deferred $0.1 million in gains on the tractors and trailers sold to TEL until the equipment is subsequently sold to a third party. The deferred gains are being carried as a reduction in our investment in TEL. At June 30, 2012 and December 31, 2011, we had a receivable from TEL for $1.1 million and $0.6 million related to cash disbursements made pursuant to a cash management agreement and related to providing various maintenance services, certain back-office functions and for miscellaneous equipment.

We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL’s 2012 net income, or $0.7 million. Our investment in TEL, totaling $2.9 million, net of $0.6 million of deferred gains, and $2.4 million, net of $0.6 million of deferred gains, at June 30, 2012 and December 31, 2011, respectively, is included in other assets in the accompanying consolidated condensed balance sheets. In the second quarter of 2012, we received an equity distribution from TEL of $0.1 million that was distributed to each member based on their respective ownership percentage in order to satisfy estimated tax payments resulting from TEL’s earnings.

See TEL’s summarized financial information below.

(in thousands)	As of and for the six months ended June 30, 2012
Current Assets	$	3,417
Non-current Assets		20,789
Current Liabilities		2,174
Non-current Liabilities		19,718
Total Equity	$	2,314
Revenue	$	30,986
Operating Expenses		29,142
Operating Income		1,844
Net Income	$	1,413