Investments in and Loans to Joint Ventures

As of December 31, 2013, the Company was party to two joint ventures: Ohio Castings LLC (Ohio Castings) and Axis LLC (Axis). Through its wholly-owned subsidiary, Castings, the Company has a 33.3% ownership interest in Ohio Castings, a limited liability company formed to produce various steel railcar parts for use or sale by the ownership group. Through its wholly-owned subsidiary, ARI Component, the Company has a 41.9% ownership interest in Axis, a limited liability company formed to produce railcar axles for use or sale by the ownership group.

The Company also previously held, through its wholly-owned direct and indirect subsidiaries, ARM I and ARM II, a 50.0% ownership interest in Amtek Railcar Industries Private Limited (Amtek Railcar), a joint venture that was formed to produce railcars and railcar components in India for sale by the joint venture. As discussed below, the Company, sold its subsidiaries, ARM I and ARM II, thereby selling all of its ownership interest in Amtek Railcar to a third party for an aggregate purchase price of $2.3 million in cash pursuant to a purchase agreement entered into on December 27, 2013. As a result of the sale the Company no longer participates in Amtek Railcar. The purchase agreement contains representations, warranties, covenants and indemnification provisions typical in transactions of this nature. In addition, the Company's former joint venture partner separately released ARI and its affiliates and granted them certain indemnification rights in connection with the joint venture and the purchase agreement.

The Company accounts for these joint ventures using the equity method. Under this method, the Company recognizes its share of the earnings and losses of the joint ventures as they accrue. Advances and distributions are charged and credited directly to the investment accounts. From time to time, the Company also makes loans to its joint ventures that are included in the investment account. The investment balance for these joint ventures is recorded within the Company’s manufacturing segment. The carrying amount of investments in and loans to joint ventures, which also represents ARI’s maximum exposure to loss with respect to the joint ventures, are as follows:



	December 31,
	2013		2012
	(in thousands)
Carrying amount of investments in and loans to joint ventures
Ohio Castings	$	7,378	$	7,022
Axis	24,052		27,181
Amtek Railcar	—		10,333
Total investments in and loans to joint ventures	$	31,430	$	44,536

Ohio Castings

Ohio Castings produces railcar parts that are sold to one of the joint venture partners. This joint venture partner sells these railcar parts to outside third parties at current market prices and sells them to the Company and the other joint venture partner at Ohio Castings' cost plus a licensing fee. The Company has been involved with this joint venture since 2003.

In June 2009, Ohio Castings temporarily idled its manufacturing facility due to the decline in the railcar industry. The facility remained idled until the third quarter of 2011 when the joint venture restarted production.

During the year ended December 31, 2010, ARI made capital contributions to Ohio Castings totaling $0.6 million to fund expenses including debt payments during the temporary plant idling. During the year ended December 31, 2011, ARI made capital contributions totaling $2.1 million to Ohio Castings to fund the restart of production. The other two partners made matching contributions in both 2010 and 2011. After a full year of production at the facility, Ohio Castings was able to repay the remaining balance of its note payable to ARI and the other two partners during the year ended December 31, 2012.

The Company accounts for its investment in Ohio Castings using the equity method. The Company has determined that, although the joint venture is a variable interest entity (VIE), this method is appropriate given that the Company is not the primary beneficiary, does not have a controlling financial interest and does not have the ability to individually direct the activities of Ohio Castings that most significantly impact its economic performance. The significant factors in this determination were that neither the Company nor Castings, has rights to the majority of returns, losses or votes, all major and strategic decisions are decided between the partners, and the risk of loss to Castings and the Company is limited to the Company’s investment through Castings.

See Note 19 for information regarding financial transactions among the Ohio Castings and Castings.

Summary financial position information for Ohio Castings, the investee company, in total, is as follows:



	December 31,
	2013		2012
	(in thousands)
Financial position:
Current assets	$	15,214	$	13,479
Non-current assets	8,651		9,140
Total assets	23,865		22,619
Current liabilities	4,752		4,621
Members’ equity	19,113		17,998
Total liabilities and members’ equity	$	23,865	$	22,619

Summary financial results of operations for Ohio Castings, the investee company, in total, are as follows:



	Years Ended December 31,
	2013		2012		2011
	(in thousands)
Results of operations:
Revenues	$	55,497	$	74,687	$	31,007
Gross profit (loss)	$	2,993	$	6,522	$	(3,099	)
Net income (loss)	$	1,115	$	3,627	$	(3,054	)

Axis

ARI, through a wholly-owned subsidiary, owns a portion of a joint venture, Axis, that manufactures and sells railcar axles. ARI currently owns 41.9% of Axis, while a minority partner owns 9.7%, with the other significant partner owning 48.4%.

Under the terms of the joint venture agreement, ARI and the other significant partner are required, and the minority partner is entitled, to contribute additional capital to the joint venture, on a pro rata basis, of any amounts approved by the joint venture’s executive committee, as and when called by the executive committee. Further, until 2016, the seventh anniversary of completion of the axle manufacturing facility, and subject to other terms, conditions and limitations of the joint venture agreement, ARI and the other significant partner are also required, in the event production at the facility has been curtailed, to contribute capital to the joint venture, on a pro rata basis, in order to maintain adequate working capital.

Under the Axis credit agreement (as amended to date, the Axis Credit Agreement), which is held by ARI and the other significant joint venture partner, principal and interest payments are due each fiscal quarter, with the last payment due on December 31, 2019. Subject to certain limitations, at the election of Axis, the interest rate for the loans under the Axis Credit Agreement is based on LIBOR or the prime rate. For LIBOR-based loans, the interest rate is equal to the greater of 7.75% or adjusted LIBOR plus 4.75%. For prime-based loans, the interest rate is equal to the greater of 7.75% or the prime rate plus 2.5%. Interest on LIBOR-based loans is due and payable, at the election of Axis, every one, two, three or six months, and interest on prime-based loans is due and payable monthly. In accordance with the terms of the Axis Credit Agreement, during 2010 and 2011, Axis satisfied interest on the loan by increasing the outstanding principal by the amount of interest that was otherwise due and payable in cash. Axis’ ability to satisfy the term loan interest by increasing the principal ceased in the third quarter of 2011.

The balance outstanding on these loans, including interest, due to ARI Component, was $32.9 million and $35.7 million as of December 31, 2013 and 2012, respectively.

ARI currently intends to fund the cash needs of Axis through loans and capital contributions through at least March 31, 2015. The other significant joint venture partner has indicated its intent to also fund the cash needs of Axis through loans and capital contributions through at least March 31, 2015.

The Company accounts for its investment in Axis using the equity method. The Company has determined that, although the joint venture is a VIE, this method is appropriate given that the Company is not the primary beneficiary, does not have a controlling financial interest and does not have the ability to individually direct the activities of Axis that most significantly impact its economic performance. The significant factors in this determination were that the Company and its wholly-owned subsidiary do not have the rights to the majority of votes or the rights to the majority of returns or losses, the executive committee and board of directors of the joint venture are comprised of one representative from each initial partner with equal voting rights and the risk of loss to the Company and subsidiary is limited to its investment in Axis and the loans due to the Company under the Axis Credit Agreement. The Company also considered the factors that most significantly impact Axis’ economic performance and determined that ARI does not have the power to individually direct the majority of those activities.

See Note 19 for information regarding financial transactions among the Company, ARI Component and Axis.

Summary combined financial position information for Axis, the investee company, in total, is as follows:



	December 31,
	2013			2012
	(in thousands)
Financial position:
Current assets	$	8,124		$	7,144
Non-current assets	38,655			45,379
Total assets	46,779			52,523
Current liabilities	12,398			10,489
Non-current liabilities	57,253			64,253
Total liabilities	69,651			74,742
Members’ deficit	(22,872		)	(22,219		)
Total liabilities and members’ deficit	$	46,779		$	52,523

Summary combined financial results of operations for Axis, the investee company, in total, are as follows:



	Years Ended December 31,
	2013			2012			2011
	(in thousands)
Results of operations:
Revenues	$	53,944		$	59,303		$	40,217
Gross profit (loss)	$	5,645		$	5,390		$	(7,249	)
Income (loss) before interest	$	4,724		$	4,465		$	(8,184	)
Net loss	$	(652	)	$	(1,345	)	$	(13,809	)

Revenues and net loss for Axis have improved as production volumes have increased and inefficiencies from the ramp up of production have decreased. The new railcar axle market closely follows the new railcar market, which has remained strong compared to prior years.

As of December 31, 2013, the investment in Axis was comprised entirely of ARI’s term loan, revolver and related accrued interest due from Axis, net of the members' deficit. Based on the discussion above, currently, this loan has been evaluated to be fully recoverable. The Company will continue to monitor its investment in Axis for impairment.

Amtek Railcar

In June 2008, the Company, through ARM I and ARM II, entered into an agreement with a partner in India to form a joint venture company, Amtek Railcar, to manufacture, sell and supply freight railcars and their components in India and other countries to be agreed upon at a facility to be constructed in India by the joint venture. The Company made equity contributions to Amtek Railcar of $9.8 million and $1.1 million in March 2010 and September 2012, respectively. The contribution in 2012, which was matched by the other joint venture partner, was made to place Amtek Railcar in a more favorable liquidity position to better utilize its existing credit agreement. ARI’s ownership interest in this joint venture was 50.0%, prior to the sale of such interest on December 27, 2013, as discussed below.

The Company accounted for its investment in Amtek Railcar using the equity method. The Company determined that, although the joint venture was a VIE, this method was appropriate given that the Company was not the primary beneficiary, did not have a controlling financial interest and did not have the ability to individually direct the activities of Amtek Railcar that most significantly impact its economic performance. The significant factors in this determination were that the Company and its wholly-owned subsidiaries did not have the rights to the majority of returns, losses or votes and the risk of loss to the Company was limited to its investment in Amtek Railcar.

Summary financial position for Amtek Railcar, the investee company, in total, are as follows:



	December 31,
	2012
	(in thousands)
Financial position:
Current assets	$	11,252
Non-current assets	51,524
Total assets	62,776
Current liabilities	7,452
Non-current liabilities	41,247
Total liabilities	48,699
Stockholders’ equity	14,077
Total liabilities and stockholders’ equity	$	62,776

Summary financial results of operations for Amtek Railcar, the investee company, in total, are as follows:



	Years Ended December 31,
	2013			2012			2011
	(in thousands)
Results of operations:
Revenues	$	268		$	—		$	—
Gross profit (loss)	$	(1,139	)	$	—		$	—
Net loss	$	(5,576	)	$	(2,094	)	$	(1,905	)

Amtek Railcar experienced delays in the initial start-up of the business, as well as delays in completing the rail connection from the joint venture’s plant to the mainline. Although the joint venture’s facility was in a ready state for production and had begun producing and selling railcar parts at the facility in India during the second quarter of 2013, demand for railcars in the Indian market remained uncertain during 2013. Amtek Railcar also incurred higher interest and depreciation expense in 2013 in connection with the completion of construction of the manufacturing plant in India. These factors contributed to Amtek Railcar delivering financial results weaker than originally anticipated. After considering various strategic alternatives with respect to Amtek Railcar, the Company decided to sell its interest in the joint venture, effective December 27, 2013. This sale resulted in a loss of $5.9 million in addition to the Company's $2.8 million share of Amtek Railcar's losses for 2013. The total loss related to the Company's interest in Amtek Railcar was $8.7 million in 2013, compared to $1.0 million in 2012.