Related Party Transactions

Equity Method Investments

The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method ("the ethanol LLCs). The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.

The following table presents the Company’s investment balance in each of its equity method investees by entity:



(in thousands)	September 30, 2012		December 31, 2011		September 30, 2011
The Andersons Albion Ethanol LLC	$	30,625	$	32,829	$	31,764
The Andersons Clymers Ethanol LLC	34,962		40,001		40,318
The Andersons Marathon Ethanol LLC	36,153		43,019		39,445
Lansing Trade Group, LLC	86,007		81,209		75,693
Other	2,310		2,003		1,898
Total	$	190,057	$	199,061	$	189,118

The Company holds a majority interest (66%) in The Andersons Ethanol Investment LLC (“TAEI”). This consolidated entity holds a 50% interest in The Andersons Marathon Ethanol LLC (“TAME”). The noncontrolling interest in TAEI is attributed 34% of the gains and losses of TAME recorded by the Company.

The following table summarizes income (losses) earned from the Company’s equity method investments by entity:



(in thousands)	% ownership at September 30, 2012 (direct and indirect)	Three months ended September 30,						Nine months ended September 30,
		2012			2011			2012			2011
The Andersons Albion Ethanol LLC	50%	$	(622	)	$	1,190		$	(204	)	$	3,720
The Andersons Clymers Ethanol LLC	38%	(972		)	211			(1,985		)	3,130
The Andersons Marathon Ethanol LLC	50%	(1,629		)	1,868			(5,116		)	4,516
Lansing Trade Group, LLC	51% *	9,187			6,518			22,347			18,030
Other	7%-33%	63			(56		)	364			93
Total		$	6,027		$	9,731		$	15,406		$	29,489

* This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 2%.

Total distributions received from unconsolidated affiliates were $24.4 million for the first nine months of 2012.

While the Company holds a majority of the outstanding shares of LTG, all major operating decisions of LTG are made by LTG’s Board of Directors. The Company does not have a majority of the board seats. Based on the terms of the LTG operating agreement, the minority shareholders have substantive participating rights that allow them to effectively participate in the decisions made in the ordinary course of business that are significant to LTG. Due to these factors, the Company does not have control over LTG and therefore accounts for this investment under the equity method.

In the third quarter of 2012, LTG qualified as a significant subsidiary of the Company under the income test. The following table presents the required summarized unaudited financial information of this investment for the three and nine months ended September 30, 2012 and 2011.



(in thousands)	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2012		2011		2012	2011
Sales	$	1,680,170	$	1,477,384	4,874,347	4,529,988
Gross profit	50,412		35,867		126,330	103,225
Income from continuing operations	20,108		13,925		49,014	39,584
Net income	18,545		12,918		47,486	37,144
Net income attributable to LTG	17,927		12,864		44,518	35,114

Investment in Debt Securities

The Company owns 100% of the cumulative convertible preferred shares of Iowa Northern Railway Corporation (“IANR”), which operates a short-line railroad in Iowa. As a result of this investment, the Company has a 49.9% voting interest in IANR, with the remaining 50.1% voting interest held by the common shareholders. The preferred shares have certain rights associated with them, including voting, dividends, liquidation, redemption and conversion. Dividends accrue to the Company at a rate of 14% annually whether or not declared by IANR and are cumulative in nature. The Company can convert its preferred shares into common shares of IANR at any time, but the shares cannot be redeemed until May 2015. This investment is accounted for as “available-for-sale” debt securities in accordance with ASC 320 and is carried at estimated fair value in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheet. The estimated fair value of the Company’s investment in IANR as of September 30, 2012 was $17.4 million.

Based on the Company’s assessment, IANR is considered a variable interest entity (“VIE”). Since the Company does not possess the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, it is not considered to be the primary beneficiary of IANR and therefore does not consolidate IANR. The decisions that most significantly impact the economic performance of IANR are made by IANR’s Board of Directors. The Board of Directors has five directors; two directors from the Company, two directors from the common shareholders and one independent director who is elected by unanimous decision of the other four directors. The vote of four of the five directors is required for all key decisions.

The Company’s current maximum exposure to loss related to IANR is $20.9 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $3.5 million. The Company does not have any obligation or commitments to provide additional financial support to IANR.

Related Party Transactions

In the ordinary course of business, the Company will enter into related party transactions with each of the investments described above, along with other related parties. The following table sets forth the related party transactions entered into for the time periods presented:



(in thousands)	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Sales revenues	$	234,258	$	177,515	$	654,308	$	594,351
Service fee revenues (a)	5,329		5,755		16,201		16,774
Purchases of product	173,519		175,210		467,841		463,989
Lease income (b)	1,695		1,445		5,428		4,112
Labor and benefits reimbursement (c)	3,192		2,730		8,943		8,114
Other expenses (d)	279		59		615		104
Accounts receivable at September 30 (e)	27,548		8,615
Accounts payable at September 30 (f)	18,474		18,857


(a)	Service fee revenues include management fee, corn origination fee, ethanol and DDG marketing fees, and other commissions.


(b)	Lease income includes the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the various ethanol LLCs and IANR.


(c)	The Company provides all operational labor to the ethanol LLCs and charges them an amount equal to the Company’s costs of the related services.


(d)	Other expenses include payments to IANR for repair shop rent and use of their railroad reporting mark, payment to LTG for the lease of railcars and other various expenses.


(e)	Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees.


(f)	Accounts payable represents amounts due to related parties for purchases of ethanol.

For the quarters ended September 30, 2012 and 2011, revenues recognized for the sale of ethanol that the Company purchased from the ethanol LLCs were $192.8 million and $180.8 million, respectively. For the nine months ended September 30, 2012 and 2011, revenues recognized for the sale of ethanol that the Company purchased from the ethanol LLCs were $489.0 million and $507.5 million, respectively. For the quarters ended September 30, 2012 and 2011, revenues recognized for the sale of corn to the ethanol LLCs under these agreements were $143.4 million and $147.0 million, respectively. For the nine months ended September 30, 2012 and 2011, revenues recognized for the sale of corn to the ethanol LLCs were $487.8 million and $488.1 million, respectively.

From time to time, the Company enters into derivative contracts with certain of its related parties, including the ethanol LLCs and LTG, for the purchase and sale of corn and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale derivative contracts it enters into with unrelated parties. The fair value of derivative contracts with related parties was a gross asset for the periods ended September 30, 2012, December 31, 2011 and September 30, 2011 of $1.7 million, $0.6 million, and $4.9 million, respectively. The fair value of derivative contracts with related parties was a gross liability for the periods ended September 30, 2012, December 31, 2011 and September 30, 2011 of $4.5 million, $1.9 million, and $1.9 million, respectively.