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Note 9 - Equity Method Investment

9 Months Ended

Sep. 30, 2014

Equity Method Investment [Abstract]

Equity Method Investment

Note 9. Equity Method Investment

In May 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 $2.4 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 nine-month period ended September 30, 2014, we sold tractors and trailers to TEL totaling $9.7 million and reversed $0.1 million in previously deferred gains on the tractors and trailers sold to TEL for equipment that was subsequently sold to a third party. The deferred gains, totaling $0.8 million at September 30, 2014, are being carried as a reduction in our investment in TEL. At September 30, 2014 and December 31, 2013, we had a receivable from TEL for $1.7 million and $1.9 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 2014 net income through September 30, 2014, or $2.5 million. Our investment in TEL, totaling $11.0 million and $8.7 million, at September 30, 2014 and December 31, 2013, respectively, is included in other assets in the accompanying condensed consolidated balance sheets. Our investment in TEL is comprised of the $4.9 million cash investment noted above and our equity in TEL's earnings since our investment, partially offset by dividends received since our investment for minimum tax witholdings and the abovementioned gains on sales of equipment to TEL.

See TEL’s summarized financial information below:

(in thousands)		As of September 30, 2014				As of December 31, 2013
Current Assets		$	11,595			$	9,160
Non-current Assets			57,209				40,296
Current Liabilities			2,940				13,456
Non-current Liabilities			51,310				26,101
Total Equity		$	14,554			$	9,899

		For the three months ended September 30, 2014				For the three months ended September 30, 2013				For the nine months ended September 30, 2014				For the nine months ended September 30, 2013
Revenue		$	23,545			$	16,672			$	64,433			$	39,838
Operating Expenses			21,120				14,256				57,613				34,631
Operating Income		$	2,425			$	2,416			$	6,820			$	5,207
Net Income		$	1,855			$	2,009			$	5,282			$	4,217