Note 9 - Equity Method Investment

9 Months Ended

Sep. 30, 2011

Note 9. Equity Method Investment

On May 31, 2011, the Company 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. Any earn-out payments will increase the Company’s investment balance should they be required. TEL is a tractor and trailer equipment leasing company and used equipment sales agent. The Company has not guaranteed any of TEL’s debt and has no obligation to provide funding, services or assets. Under the agreement, the Company has 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 the Company’s interest based on the same terms detailed above. The Company sold tractors and trailers to TEL for $3.7 million during the first nine months of 2011 and $2.9 million during fiscal 2010 and provided maintenance services to TEL totaling $0.1 million during the first nine months of 2011 and $0.2 million in fiscal 2010. As of September 30, 2011, amounts due the Company from TEL were $0.2 million related to reimbursements due to the Company for providing certain back office and maintenance functions for TEL.

The Company has accounted for its investment in TEL using the equity method of accounting and thus the Company’s financial results include its proportionate share of TEL’s net income since May 31, 2011, or $0.4 million and $0.5 million for the three and nine months ended September 30, 2011. In the third quarter of 2011, we received an equity distribution from TEL for $0.2 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. The distribution is the result of TEL being a limited liability company and thus its earnings pass through to the members and are taxed on their respective tax returns. The Company’s investment in TEL totaling $1.7 million at September 30, 2011 is included in other assets in the accompanying consolidated condensed balance sheet.

See TEL’s summarized financial information below subsequent to the Company’s investment.

(in thousands)	For the four months ended September 30,
	2011

Revenue	$	18,584
Operating Expenses		17,465
Operating Income		1,119
Net Income	$	1,047