Related Party Transactions

Equity Method Investments

The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. 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.

On July 31, 2013, the Company, along with Lansing Trade Group, LLC established joint ventures that acquired 100% of the stock of Thompsons Limited, including its investment in the related U.S. operating company, for a purchase price of $152 million, which includes an adjustment for excess working capital. The purchase price includes $48 million cash paid by the Company, $40 million cash paid by LTG, and $64 million of external debt at Thompsons Limited. As part of the purchase LTG also contributed a Canadian branch of its business to Thompsons Limited. LTG is currently performing a valuation of its contributed business, which could potentially result in a gain for book purposes to be recorded in the fourth quarter by LTG. While the valuation is still being performed, the Company's portion of the gain could be approximately $3 million. Each Company owns 50% of the investment. Thompsons Limited is a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario, and operates 12 locations across Ontario and Minnesota.

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



(in thousands)	September 30, 2013		December 31, 2012		September 30, 2012
The Andersons Albion Ethanol LLC	$	35,643	$	30,227	$	30,625
The Andersons Clymers Ethanol LLC	37,695		33,119		34,962
The Andersons Marathon Ethanol LLC	37,844		32,996		36,153
Lansing Trade Group, LLC	100,071		92,094		86,007
Thompsons Limited (a)	47,477		—		—
Other	3,913		2,472		2,310
Total	$	262,643	$	190,908	$	190,057

(a) Thompsons Limited and related U.S. operating company held by joint ventures

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:



	% ownership at September 30, 2013	Three months ended September 30,						Nine months ended September 30,
(in thousands)		2013			2012			2013			2012
The Andersons Albion Ethanol LLC	50%	$	3,711		$	(622	)	$	5,627		$	(204	)
The Andersons Clymers Ethanol LLC	38%	3,437			(972		)	4,576			(1,985		)
The Andersons Marathon Ethanol LLC	50%	3,026			(1,629		)	4,848			(5,116		)
Lansing Trade Group, LLC	49% (a)	12,391			9,187			25,255			22,347
Thompsons Limited (b)	50%	(722		)	—			(722		)	—
Other	5%-23%	334			63			407			364
Total		$	22,177		$	6,027		$	39,991		$	15,406

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

(b) Thompsons Limited and related U.S. operating company held by joint ventures

Total distributions received from unconsolidated affiliates were $4.1 million and $17.5 million for the three and nine months ended September 30, 2013, respectively.

The Company does not hold a majority of the outstanding shares of LTG. All major operating decisions of LTG are made by LTG’s Board of Directors and the Company does not have a majority of the board seats. In addition, based on the terms of the operating agreement between LTG and its owners, 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.

The Company does not hold a majority of the outstanding shares of Thompsons Limited joint ventures. All major operating decisions of these joint ventures are made by their Board of Directors and the Company does not have a majority of the board seats. Due to these factors, the Company does not have control over these joint ventures and therefore accounts for these investments under the equity method.

In the third quarter of 2013, 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, 2013 and 2012:



(in thousands)	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2013		2012		2013		2012
Sales	$	2,206,433	$	1,680,170	$	6,828,076	$	4,874,347
Gross profit	64,095		50,412		143,608		126,330
Income before income taxes	27,321		20,108		54,122		49,014
Net income	25,496		18,545		52,490		47,486
Net income attributable to LTG	25,211		17,927		51,823		44,518

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, 2013 was $17.7 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 $23.0 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $5.3 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:



	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2013		2012		2013		2012
Sales revenues	$	316,154	$	234,258	$	985,618	$	654,308
Service fee revenues (a)	5,746		5,329		17,360		16,201
Purchases of product	190,009		173,519		535,068		467,841
Lease income (b)	1,590		1,695		4,661		5,428
Labor and benefits reimbursement (c)	2,682		3,192		7,948		8,943
Other expenses (d)	325		279		1,078		615
Accounts receivable at September 30 (e)	19,736		27,548
Accounts payable at September 30 (f)	16,163		18,474


(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 unconsolidated 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 facility 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, 2013 and 2012, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $155.9 million and $192.8 million, respectively. For the nine months ended September 30, 2013 and 2012, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $464.5 million and $489.0 million, respectively. For the quarters ended September 30, 2013 and 2012, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $179.1 million and $143.4 million, respectively. For the nine months ended September 30, 2013 and 2012, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were $584.3 million and $487.8 million, respectively.

From time to time, the Company enters into derivative contracts with certain of its related parties 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 contract assets with related parties for the periods ended September 30, 2013, December 31, 2012 and September 30, 2012 was $14.2 million, $3.2 million, and $1.7 million, respectively. The fair value of derivative contract liabilities with related parties for the periods ended September 30, 2013, December 31, 2012 and September 30, 2012 was $3.3 million, $0.3 million, and $4.5 million, respectively.