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 January 22, 2014, the Company entered into an agreement with Lansing Trade Group, LLC ("LTG") for a partial redemption of the Company's investment in LTG for $60 million. At the time of redemption, the Company's interest in LTG reduced from approximately 47.5 percent to approximately 39.2 percent on a fully diluted basis. A portion of the proceeds ($28.5 million) was considered a distribution of earnings and reduced the Company's cost basis in LTG. The difference between the remaining proceeds of $31.5 million and the new cost basis of the shares sold, net of deal costs, resulted in a book gain of $17.1 million ($10.7 million after tax). This gain was recorded in Other income.

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



(in thousands)	September 30, 2015		December 31, 2014		September 30, 2014
The Andersons Albion Ethanol LLC	$	31,409	$	27,824	$	33,465
The Andersons Clymers Ethanol LLC	31,151		37,624		51,692
The Andersons Marathon Ethanol LLC	30,066		31,537		42,416
Lansing Trade Group, LLC	84,081		78,696		72,560
Thompsons Limited (a)	43,803		48,455		53,125
Other	2,697		2,721		3,908
Total	$	223,207	$	226,857	$	257,166

(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 in its equity in earnings of affiliates.

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



	% ownership at September 30, 2015	Three months ended September 30,					Nine months ended September 30,
(in thousands)	% ownership at September 30, 2015	2015			2014		2015		2014
The Andersons Albion Ethanol LLC	53%	$	665		$	4,566	$	4,080	$	16,165
The Andersons Clymers Ethanol LLC	38%	1,454			4,564		4,922		16,819
The Andersons Marathon Ethanol LLC	50%	385			4,596		3,530		23,106
Lansing Trade Group, LLC	40% (a)	1,382			10,016		9,290		17,130
Thompsons Limited (b)	50%	17			68		1,385		3,154
Other	5%-34%	(58		)	107		88		257
Total		$	3,845		$	23,917	$	23,295	$	76,631

(a) This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 1.4%

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

Total distributions received from unconsolidated affiliates were $1.6 million and $20.8 million for the three and nine months ended September 30, 2015 and $31.0 million and $96.9 million for the three and nine months ended September 30, 2014.

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 preference, redemption and conversion rights.

IANR has indicated its desire to redeem our investment of preferred shares. On May 25, 2015, the Company and IANR agreed to reduce the preferred rate of the investment to 9% for the period of May to December, 2015 in exchange for certain other accommodations, as IANR attempts to complete its financing arrangements.

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, 2015 was $12.8 million. See Footnote 10 for additional discussion on the change in the investment value.

The Company’s current maximum exposure to loss related to IANR is $22.2 million, which represents the Company’s investment at fair value plus unpaid accrued dividends of $9.4 million as of September 30, 2015. The Company does not have any obligations 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)	2015		2014		2015		2014
Sales revenues	$	230,409	$	247,451	$	577,133	$	766,553
Service fee revenues (a)	3,610		5,732		14,865		17,573
Purchases of product	123,051		140,843		339,159		465,459
Lease income (b)	1,542		1,426		4,787		4,686
Labor and benefits reimbursement (c)	2,950		2,804		8,761		8,603
Other expenses (d)	269		301		827		1,025


(a)	Service fee revenues include management fees, corn origination fees, 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.



(in thousands)	September 30, 2015		December 31, 2014		September 30, 2014
Accounts receivable (e)	$	19,799	$	25,049	$	21,407
Accounts payable (f)	15,929		17,687		21,911


(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 and other various items.

For the three months ended September 30, 2015 and 2014, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $105.1 million and $131.7 million, respectively. For the three months ended September 30, 2015 and 2014, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $119.4 million and $93.0 million, respectively.

For the nine months ended September 30, 2015 and 2014, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $315.9 million and $444.2 million, respectively. For the nine months ended September 30, 2015 and 2014, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $323.7 million and $368.3 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 of derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties as of September 30, 2015, December 31, 2014 and September 30, 2014 was $3.4 million, $1.4 million and $24.6 million, respectively. The fair value of derivative contract liabilities with related parties as of September 30, 2015, December 31, 2014 and September 30, 2014 was $0.3 million, $3.8 million and $18.9 million, respectively.