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Related Party Transactions
6 Months Ended
Jun. 30, 2012
Related Party Transactions

3. Related Party Transactions

Our related parties included:

 

   

Marathon Oil Companies until June 30, 2011, the effective date of the Spinoff.

 

   

The Andersons Clymers Ethanol LLC (“TACE”), in which we have a 36 percent interest, and The Andersons Marathon Ethanol LLC (“TAME”), in which we have a 50 percent interest. These companies each own an ethanol production facility.

 

   

Centennial Pipeline LLC (“Centennial”), in which we have a 50 percent interest. Centennial owns a refined products pipeline and storage facility.

 

   

LOOP LLC (“LOOP”), in which we have a 51 percent noncontrolling interest. LOOP operates an offshore oil port.

 

   

Other equity method investees.

We believe that transactions with related parties, other than certain administrative transactions with the Marathon Oil Companies to effect the Spinoff and related to the provision of services, were conducted on terms comparable to those with unrelated parties.

On May 25, 2011, we entered into a separation and distribution agreement and several other agreements with the Marathon Oil Companies to effect the Spinoff and to provide a framework for our relationship with the Marathon Oil Companies. These agreements govern the relationship between us and Marathon Oil subsequent to the completion of the Spinoff and provide for the allocation between us and the Marathon Oil Companies of assets, liabilities and obligations attributable to periods prior to the Spinoff. Because the terms of these agreements were entered into in the context of a related party transaction, the terms may not be comparable to terms that would be obtained in a transaction between unaffiliated parties.

 

We entered into a transition services agreement with Marathon Oil under which we were providing each other with a variety of administrative services on an as-needed basis for a period of time not to exceed one year following the Spinoff. The charges under the transition service agreement were at cost-based rates that had been negotiated between us and Marathon Oil. Services provided to us by the Marathon Oil Companies for the six months ended June 30, 2012 included accounting, audit, treasury, information technology and health, environmental, safety and security. Services provided by us to the Marathon Oil Companies for the six months ended June 30, 2012 included administrative services, legal, human resources, accounting, audit, information technology and health, environmental, safety and security. The transition services agreement terminated on June 30, 2012.

Sales to related parties were as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
(In millions)    2012      2011      2012      2011  

Equity method investees:

           

Centennial

   $ 1       $ 14       $ 1       $ 34   

Other equity method investees

     2         2         3         4   

Marathon Oil Companies

     —           12         —           13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3       $ 28       $ 4       $ 51   
  

 

 

    

 

 

    

 

 

    

 

 

 

Related party sales to Centennial consist primarily of petroleum products. Related party sales to the Marathon Oil Companies consisted primarily of pipeline operating revenue.

Purchases from related parties were as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
(In millions)    2012      2011      2012      2011  

Equity method investees:

           

Centennial

   $ —         $ 18       $ 9       $ 31   

LOOP

     9         23         21         32   

TAME

     30         39         60         71   

TACE

     10         15         15         27   

Other equity method investees

     8         9         15         15   

Marathon Oil Companies

     —           877         —           1,590   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 57       $ 981       $ 120       $ 1,766   
  

 

 

    

 

 

    

 

 

    

 

 

 

Related party purchases from Centennial consist primarily of refinery feedstocks and refined product transportation costs. Related party purchases from LOOP and other equity method investees consist primarily of crude oil transportation costs. Related party purchases from TAME and TACE consist of ethanol. Related party purchases from the Marathon Oil Companies consisted primarily of crude oil and natural gas, which were recorded at contracted prices that were market-based.

The Marathon Oil Companies performed certain services for us prior to the Spinoff such as executive oversight, accounting, treasury, tax, legal, procurement and information technology services. We also provided certain services to the Marathon Oil Companies prior to the Spinoff, such as legal, human resources and tax services. The two groups of companies charged each other for these shared services at a negotiated rate. Where costs incurred by the Marathon Oil Companies on our behalf could not practically be determined by specific utilization, these costs were primarily allocated to us based on headcount or computer utilization. Our management believes those allocations were a reasonable reflection of the utilization of services provided. However, those allocations may not have fully reflected the expenses that would have been incurred had we been a stand-alone company during the periods presented. Net charges from the Marathon Oil Companies for these services reflected within selling, general and administrative expenses in the consolidated statements of income were $14 million and $26 million for the three and six months ended June 30, 2011, respectively.

 

Current receivables from related parties, which are included in receivables, less allowance for doubtful accounts on the consolidated balance sheets, were as follows:

 

(In millions)    June 30,
2012
     December 31,
2011
 

Equity method investees

   $ 2       $ 2   

Payables to related parties, which are included in accounts payable on the consolidated balance sheets, were as follows:

 

(In millions)    June 30,
2012
     December 31,
2011
 

Equity method investees:

     

Centennial

   $ —         $ 7   

LOOP

     4         5   

TAME

     3         4   

TACE

     2         2   

Other equity method investees

     2         2   
  

 

 

    

 

 

 

Total

   $ 11       $ 20   
  

 

 

    

 

 

 

We have throughput and deficiency agreements with LOOP and Centennial. We had prepaid tariff balances with LOOP of $4 million at December 31, 2011, which were utilized during the six months ended June 30, 2012, and with Centennial of $14 million at June 30, 2012 and $11 million at December 31, 2011. During the first quarter of 2012, we impaired our prepaid tariff with Centennial. Prepaid tariff balances are reflected in other noncurrent assets on the consolidated balance sheets. For additional information on the impairment, see Note 14.

During the six months ended June 30, 2011, we borrowed $7,748 million and repaid $10,319 million under the credit agreement with MOC Portfolio Delaware, Inc. (“PFD”), a subsidiary of Marathon Oil. The credit agreement was terminated on June 30, 2011, and there has been no subsequent activity.

There were no borrowings during the six months ended June 30, 2011 under our revenue bonds proceeds subsidiary loan agreement with Marathon Oil. The loan balance outstanding as of December 31, 2010 of $1,047 million was repaid on February 1, 2011 and the loan was terminated effective April 1, 2011.

Our investments in shares of PFD Redeemable Class A, Series 1 Preferred Stock (“PFD Preferred Stock”) were accounted for as investments in related party available-for-sale debt securities and were redeemed prior to the Spinoff.

Related party net interest and other financial income was as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
(In millions)    2012      2011     2012      2011  

Dividend income:

          

PFD Preferred Stock

   $ —         $ 18      $ —         $ 35   

Interest expense:

          

PFD credit agreement

     —           1        —           3   

Marathon Oil loan agreement

     —           —          —           5   

Interest capitalized

     —           (1     —           (8
  

 

 

      

 

 

    

Net interest expense

     —           —          —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Related party net interest and other financial income

   $ —         $ 18      $ —         $ 35   
  

 

 

    

 

 

   

 

 

    

 

 

 

We also recorded property, plant and equipment additions related to capitalized interest incurred by Marathon Oil on our behalf of $2 million in the six months ended June 30, 2011, which were reflected as contributions from Marathon Oil.

Certain asset or liability transfers between us and Marathon Oil, including assets and liabilities contributed under the separation and distribution agreement related to the Spinoff, and certain expenses, such as stock-based compensation, incurred by Marathon Oil on our behalf have been recorded as non-cash capital contributions or distributions. The net non-cash capital contributions from Marathon Oil were $74 million in the six months ended June 30, 2011.