Related Party Transactions

6 Months Ended

Jun. 30, 2011

8. 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. See Note 3 in the Company’s 2010 Form 10-K for more information, including descriptions of various arrangements the Company has with certain of these entities.

For the quarters ended June 30, 2011 and 2010, revenues recognized for the sale of ethanol that the Company purchased from the ethanol LLCs were $168.7 million and $97.5 million, respectively. For the six months ended June 30, 2011 and 2010, revenues recognized for the sale of ethanol that the Company purchased from the ethanol LLCs were $326.7 million and $210.1 million, respectively. For the quarters ended June 30, 2011 and 2010, revenues recognized for the sale of corn to the ethanol LLCs under these agreements were $194.4 million and $97.6 million, respectively. For the six months ended June 30, 2011 and 2010, revenues recognized for the sale of corn to the ethanol LLCs were $341.1 million and $195.2 million, respectively.

The Company also sells and purchases both grain and ethanol with LTG in the ordinary course of business on terms similar to sales and purchases with unrelated customers.

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 of derivative contracts it enters into with unrelated parties. At June 30, 2011, the fair value of derivative contracts with related parties was a gross asset and liability of $4.1 million and $2.3 million, respectively.

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


	% ownership at
	June 30, 2011			Three months ended				Six months ended
	(direct and			June 30,				June 30,
(in thousands)	indirect)			2011		2010		2011		2010

The Andersons Albion Ethanol LLC		50	%	$	2,146	$	1,201	$	2,530	$	3,922
The Andersons Clymers Ethanol LLC		38	%		2,783		2,047		2,919		4,931
The Andersons Marathon Ethanol LLC		50	%		2,153		1,145		2,648		2,384
Lansing Trade Group LLC		51	%		5,346		2,272		11,512		5,158
Other		7%-33	%		84		2		149		177

Total				$	12,512	$	6,667	$	19,758	$	16,572

Total distributions received from unconsolidated affiliates were $6.7 million and $15.3 million for the three and six months ended June 30, 2011.

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 and the Company does not have a majority of the board seats. In addition, 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.

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 all gains and losses of TAME.

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


	June 30,		December 31,		June 30,
(in thousands)	2011		2010		2010

The Andersons Albion Ethanol LLC	$	31,075	$	31,048	$	32,635
The Andersons Clymers Ethanol LLC		40,106		37,496		37,109
The Andersons Marathon Ethanol LLC		37,577		34,929		36,197
Lansing Trade Group LLC		69,175		70,143		60,729
Other		1,955		1,733		1,428

Total	$	179,888	$	175,349	$	168,098

Investment in Debt Securities

During the second quarter of 2010, the Company paid $13.1 million to acquire 100% of newly issued cumulative convertible preferred shares of Iowa Northern Railway Corporation (“IANR”). IANR operates a 163-mile short-line railroad that runs diagonally through Iowa from northwest to southeast from Manly to Cedar Rapids and a branch line from Waterloo to Oelwein. IANR has a fleet of 21 locomotives and approximately 500 railcars and serves primarily agribusiness customers. It is also involved in the development of logistics terminals designed to aid the transloading of various products, including ethanol and wind turbine components. 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 purchased by the Company 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 after five years. 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 balance sheet. The estimated fair value of the Company’s investment in IANR as of June 30, 2011 was $15.8 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 $17.7 million, which represents the Company’s investment plus unpaid accrued dividends to date of $1.9 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. The following table sets forth the related party transactions entered into for the time periods presented:


	Three months ended				Six months ended
	June 30,				June 30,
(in thousands)	2011		2010		2011		2010

Sales and service fee revenues	$	232,239	$	115,285	$	412,986	$	234,131
Purchases of product		159,381		105,318		288,124		215,071
Lease income (a)		1,415		1,436		2,667		2,819
Labor and benefits reimbursement (b)		2,611		2,713		5,384		5,399
Other expenses (c)		45		—		45		—
Accounts receivable at June 30 (d)		23,558		12,056
Accounts payable at June 30 (e)		21,409		16,292


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

(b)		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.

(c)		Other expenses include payments to IANR for repair shop rent and use of their railroad reporting mark.

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

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

- Definition

This element may be used for the entire related party transactions disclosure as a single block of text. Disclosure may include: the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References+ Details