Business Combinations and Business Deconsolidation

9 Months Ended

Sep. 30, 2011

Business Combinations and Business Deconsolidation

Business Combinations and Business Deconsolidation

(3)  Business Combinations and Business Deconsolidation

Railroad Operation — Business Combination

In August 2011, the Company, through its majority-owned Special Situations Platform subsidiary, acquired certain net assets from a company that provided short-line rail services and operated a transload facility for $2.1 million. The transaction was accounted for as a business combination, and accordingly, all of the assets acquired and liabilities assumed were measured at fair value on the acquisition date and included in the Company’s consolidated balance sheet. The estimated fair value of the identifiable assets acquired included $2.1 million of property and equipment and $0.2 million of intangible assets. The estimated fair value of the identifiable liabilities assumed by the Company as a result of the transaction was not significant. The fair value of the net assets acquired by the Company exceeded the purchase price by approximately $0.2 million, which the Company recognized as “Gain on business combination” in its consolidated statement of operations for the three- and nine-month periods ended September 30, 2011.

European Acquisition Partnership — Business Combination

In June 2011, the Company acquired a controlling interest in a European Acquisition Partnership from a foreign equity-method investee for $0.6 million. The Company owned a noncontrolling equity interest in this entity prior to the transaction. As a result of this transaction, the Company’s ownership interest in the Acquisition Partnership increased to 100% and the Company obtained control of such entity, resulting in the Acquisition Partnership becoming a consolidated subsidiary of the Company. The transaction was accounted for as a business combination, and accordingly, all of the assets and liabilities of the Acquisition Partnership were measured at fair value on the acquisition date and included in the Company’s consolidated balance sheet. The estimated fair value of the Acquisition Partnership’s identifiable assets and liabilities that were added to the Company’s consolidated balance sheet on the acquisition date included $2.7 million of Portfolio Assets and $1.7 million of notes payable and accrued liabilities (including $0.9 million of intercompany notes payable that were eliminated in consolidation with the Company’s consolidated financial statements).

Under business combination accounting guidance, the Company’s carrying value of its previously-held equity-method investment in the Acquisition Partnership was re-measured to fair value at the acquisition date. The fair value of the Company’s previously-held equity interest exceeded the aggregate carrying value by approximately $0.3 million, which the Company recognized as “Gain on business combination” in its consolidated statement of operations for the nine-month period ended September 30, 2011.

Coal Mine Operation — Business Combination

The Company, through its majority-owned Special Situations Platform subsidiary, obtained control of an equity-method investee (coal mine operation), effective April 1, 2010, after the investee acquired and redeemed the 55.5% ownership interest held by the then-majority shareholder in exchange for a $4.6 million note payable. As a result of the equity interest redemption, the Company’s ownership interest in the investee increased to 88.8% from 39.5% and the coal mine operation became a consolidated subsidiary of the Company. The transfer of a controlling interest in the investee to the Company was accounted for as a business combination, and accordingly, all of the assets and liabilities of the coal mine operation were measured at fair value on the date control was obtained and included in the Company’s consolidated balance sheet, net of intercompany account balances that were eliminated in consolidation. The following table reflects the estimated fair value of the coal mine operation’s identifiable assets and liabilities, and the estimated fair value of the noncontrolling interest, that were added to the Company’s consolidated balance sheet at April 1, 2010 (in thousands):

Cash	$	1,597
Coal supply agreement	13,092
Accounts receivable and other assets	3,699
Total assets	$	18,388
Note payable	$	4,615
Coal purchase agreement	2,394
Intercompany liability (1)	4,086
Accounts payable and other liabilities	2,415
Total liabilities	$	13,510
Noncontrolling interest	$	548

(1)  Eliminated in consolidation with the Company’s consolidated financial statements.

In addition to measuring the subsidiary’s assets and liabilities at fair value at the date control was obtained on April 1, 2010, the Company’s carrying value of its previously-held equity-method investment in the coal mine subsidiary was re-measured to fair value under accounting guidance applicable to business combinations. The fair value of the Company’s total interest in the subsidiary after the business combination exceeded the carrying value of its previously-held equity interest by approximately $4.8 million, which the Company recognized as “Gain on business combinations” in its consolidated statement of operations for the second quarter of 2010. The Company’s carrying value of its previously-held equity investment in the coal mine subsidiary included the effects of the investee’s distribution of a wholly-owned equipment subsidiary (i.e. spin-off transaction), effective April 1, 2010, to the owners in proportion to their then-existing ownership percentages. The spin-off transaction effected by the investee was recorded at carrying value and the Company’s proportionate share of equity in the distributed entity approximated $2.7 million — which it continued to record as an equity-method investment after the spin-off.

The Company’s application of business combination accounting in connection with obtaining control of the coal mine subsidiary resulted in the Company’s recognition of an asset for an above-market-price coal supply agreement and a liability for an above-market-price coal purchase agreement. The fair values of the coal supply and coal purchase agreements were based on discounted cash flow calculations of the difference between the expected contract revenues and costs based on the stated contractual terms and the estimated net contract revenues and costs derived from applying forward-market commodity prices as of April 1, 2010. The discount rate used for the calculations was obtained from independent pricing reflecting broker market quotes. The coal supply asset and coal purchase liability were amortized over the actual amount of tons shipped under each contract (which both expired in December 2010). The Company disposed of its coal mine subsidiary in December 2010 (see Note 4).

Domestic Acquisition Partnerships — Business Combination

In March 2010, the Company acquired the remaining 50% ownership interest in three domestic Acquisition Partnerships for $4.4 million. As a result of this transaction, the Company’s ownership interest in each of these entities increased to 100% and the Company obtained control of such entities, resulting in these Acquisition Partnerships becoming consolidated subsidiaries of the Company. The transaction was accounted for as a business combination, and accordingly, all of the assets and liabilities of these Acquisition Partnerships were measured at fair value on the acquisition date and included in the Company’s consolidated balance sheet. The estimated fair value of the Acquisition Partnerships’ identifiable assets and liabilities that were added to the Company’s consolidated balance sheet on the acquisition date included $21.8 million of Portfolio Assets, $1.4 million of cash, and $13.8 million of notes payable to banks.

Under business combination accounting guidance, the Company’s carrying value of its previously-held equity-method investments in these Acquisition Partnerships was re-measured to fair value at the acquisition date. The fair value of the Company’s previously-held equity interests exceeded the aggregate carrying values by approximately $0.9 million, which the Company recognized as “Gain on business combination” in its consolidated statement of operations for the nine-month period ended September 30, 2010.

Manufacturing Subsidiary — Deconsolidation

Effective June 30, 2010, the Company deconsolidated its then-majority-owned manufacturing subsidiary (under its Special Situations Platform) when the Company and the noncontrolling owners consented to certain amendments to the subsidiary’s operating agreement, that resulted in the Company ceasing to have a controlling interest in the manufacturing entity. Accordingly, the Company deconsolidated and removed the carrying values of the manufacturing subsidiary’s assets ($9.9 million) and liabilities ($9.6 million) and the carrying value of the noncontrolling interest ($39,000) attributed to the subsidiary from its consolidated balance sheet on June 30, 2010. The Company also recorded its retained noncontrolling interest in the manufacturing entity at estimated fair value of approximately $0.3 million at June 30, 2010. No gain or loss was recognized by the Company as a result of deconsolidating this subsidiary. On June 30, 2010, the Company started to account for its retained equity investment in the manufacturing entity under the equity-method of accounting. Consequently, the Company no longer reports the individual revenue and expense line-items of the manufacturing entity’s operations in its consolidated statements of operations (rather, the Company began recording its share of the subsidiary’s net earnings as “Equity in earnings of unconsolidated subsidiaries” beginning July 1, 2010).