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Note 11 - Equity Method Investment

6 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Equity Method Investment [Text Block]

Note 11.

Equity Method Investment

We own a 49.0% interest in Transport Enterprise Leasing, LLC ("TEL"), a tractor and trailer equipment leasing company and used equipment reseller. There is no loss limitation on our 49.0% interest in TEL. We have not guaranteed any of TEL's debt and have no obligation to provide funding, services, or assets. In May 2016, the operating agreement with TEL was amended to, among other things, remove the previously agreed to fixed date purchase options. Our option to acquire up to the remaining 51% of TEL would have expired May 31, 2016, and TEL’s majority owners would have received the option to purchase our ownership in TEL. There are no current put rights to purchase or sell with any owners. TEL’s majority owners are generally restricted from transferring their interests in TEL, other than to certain permitted transferees, without our consent. There are no third-party liquidity arrangements, guarantees, and/or other commitments that may affect the fair value or risk of our interest in TEL.

We sold $1.0 million and no tractors or trailers to TEL during the six months ended June 30, 2021 and 2020, respectively, and we received $0.4 million and $4.4 million, respectively, for providing various maintenance services, certain back-office functions, building and lot rental, and for miscellaneous equipment. There was no equipment purchased from TEL during the six months ended June 30, 2021 and 2020. Additionally, we paid approximately $0.1 million to TEL for leases of revenue equipment during each of the six months ended June 30, 2021 and 2020. We recognized a net deferral of gains totaling less than $0.1 million and net reversal of previously deferred gains totaling less than $0.1 million for the six months ended June 30, 2021 and 2020, respectively, representing 49% of the gains on units sold to TEL less any gains previously deferred and recognized when the equipment was subsequently sold to a third-party. Deferred gains, totaling $0.3 million and $0.2 million at June 30, 2021 and 2020, respectively, are being carried as a reduction in our investment in TEL. At June 30, 2021 and December 31, 2020, we had accounts receivable from TEL of $0.7 million related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf.

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 2021 net income through June 30, 2021, or $6.3 million. We received no equity distributions from TEL during the six months ended June 30, 2021 and 2020.

Our accounts receivable from TEL and investment in TEL as of June 30, 2021 and December 31, 2020 are as follows (in thousands):

Description:	Balance Sheet Line Item:		June 30, 2021				December 31, 2020
Accounts receivable from TEL	Driver advances and other receivables		$	682			$	661
Investment in TEL	Other assets			40,654				34,365

Our accounts receivable from TEL related to cash disbursements made pursuant to our performance of certain back-office and maintenance functions on TEL’s behalf.

See TEL's summarized financial information below:

(in thousands)		As of June 30,				As of December 31,
		2021				2020
Total Assets		$	322,605			$	374,591
Total Liabilities			248,794				318,743
Total Equity		$	73,811			$	55,848

(in thousands)		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2021				2020				2021				2020
Revenue		$	25,534			$	23,997			$	48,438			$	49,218
Cost of Sales			2,091				2,815				3,233				7,584
Operating Expenses			15,036				17,649				28,942				36,525
Operating Income			8,407				3,533				16,263				5,109
Net Income (Loss)		$	6,615			$	1,021			$	12,619			$	(421	)