Investments in and Loans to Joint Ventures

As of December 31, 2014, the Company was party to two joint ventures: Ohio Castings Company 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 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,
	2014		2013
	(in thousands)
Carrying amount of investments in and loans to joint ventures
Ohio Castings	$	9,194	$	7,378
Axis	19,974		24,052
Total investments in and loans to joint ventures	$	29,168	$	31,430

See Note 19 for information regarding financial transactions with ARI's joint ventures.

Ohio Castings

Ohio Castings produces railcar parts that are sold to one of the joint venture partners. This joint venture partner then 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 determined that, although the joint venture is a variable interest entity (VIE), accounting for its activity under the equity 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 Castings nor the Company, 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.

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



	December 31,
	2014		2013
	(in thousands)
Financial position:
Current assets	$	21,607	$	15,214
Non-current assets	9,085		8,651
Total assets	30,692		23,865
Current liabilities	5,673		4,752
Members’ equity	25,019		19,113
Total liabilities and members’ equity	$	30,692	$	23,865

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



	Years Ended December 31,
	2014		2013		2012
	(in thousands)
Results of operations:
Revenues	$	83,872	$	55,497	$	74,687
Gross profit	$	8,277	$	2,993	$	6,522
Net earnings	$	5,906	$	1,115	$	3,627

Axis

ARI, through a wholly-owned subsidiary, owns a portion of a joint venture, Axis, to manufacture and sell 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 June 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 amended Axis credit agreement (Axis Credit Agreement), whereby ARI and the other significant partner are equal lenders, principal payments are due each fiscal quarter, with the last payment due on December 31, 2019. During 2013 and 2014, the applicable interest rate for the loans under the Axis Credit Agreement was 7.75%. Interest payments are due and payable monthly.

The balance outstanding on these loans, including interest, due to ARI Component, was $29.1 million and $32.9 million as of December 31, 2014 and 2013, respectively.

ARI currently intends to fund the cash needs of Axis through loans and capital contributions through at least March 31, 2016. 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, 2016.

The Company has determined that, although the joint venture is a VIE, accounting for its activity under the equity 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 neither ARI Component nor the Company has rights to the majority of returns, losses or votes, the executive committee and board of directors of the joint venture are comprised of one representative from each significant partner with equal voting rights and the risk of loss to the Company and ARI Component is limited to its investment in Axis and the loans due to the Company under the Axis Credit Agreement.

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



	December 31,
	2014			2013
	(in thousands)
Financial position:
Current assets	$	7,510		$	8,124
Non-current assets	33,838			38,655
Total assets	41,348			46,779
Current liabilities	17,356			12,398
Non-current liabilities	47,253			57,253
Total liabilities	64,609			69,651
Members’ deficit	(23,261		)	(22,872		)
Total liabilities and members’ deficit	$	41,348		$	46,779

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



	Years Ended December 31,
	2014			2013			2012
	(in thousands)
Results of operations:
Revenues	$	69,667		$	53,944		$	59,303
Gross profit	$	5,496		$	5,645		$	5,390
Earnings before interest	$	4,496		$	4,724		$	4,465
Net loss	$	(390	)	$	(652	)	$	(1,345	)

As of December 31, 2014, the investment in Axis was comprised entirely of ARI's term loan and revolver. The Company has evaluated these loans to be fully recoverable. The Company will continue to monitor its investment in Axis for impairment.

Amtek Railcar

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. The Company, sold its subsidiaries, ARM I and ARM II, thereby selling all of its ownership interest in Amtek Railcar to a third party 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. 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. Amtek Railcar incurred a net loss of $5.6 million and $2.1 million during 2013 and 2012, respectively.

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 impacted 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.