Note 9 - Equity Method Investment

3 Months Ended

Mar. 31, 2013

Note 9. Equity Method Investment

On May 31, 2011, we acquired a 49.0% interest in TEL for $1.5 million in cash. Additionally, TEL’s majority owners were eligible to receive an earn-out of up to $4.5 million for TEL’s results through December 31, 2012, of which $1.0 million was earned based on TEL’s 2011 results and $2.9 million was earned based on TEL’s 2012 results. The earn-out payments increased our investment balance and there are no additional possible earn-outs.

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, services, or assets. We have an option to acquire 100% of TEL through May 31, 2016, by purchasing the majority owners’ interest based on a multiple of TEL’s average earnings before interest 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 three-month period ended March 31, 2013, we sold tractors and trailers to TEL for $2.8 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, totaling $0.8 million at March 31, 2013, are being carried as a reduction in our investment in TEL. At March 31, 2013 and December 31, 2012, we had a receivable from TEL for $1.0 million and $0.8 million, respectively, 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 2013 net income, or $0.5 million. Our investment in TEL, totaling $6.5 million and $6.1 million, at March 31, 2013 and December 31, 2012, respectively, is included in other assets in the accompanying condensed consolidated balance sheets.

See TEL’s summarized financial information below.

(in thousands)	As of March 31, 2013		As of December 31, 2012
Current Assets	$	8,795	$	6,898
Non-current Assets		24,111		21,150
Current Liabilities		1,413		9,988
Non-current Liabilities		26,092		13,670
Total Equity	$	5,401	$	4,390

	For the three months ended March 31, 2013		For the three months ended March 31, 2012
Revenue	$	10,328	$	13,283
Operating Expenses		9,020		12,582
Operating Income		1,308		698
Net Income	$	1,011	$	500