Related Party Transactions

9 Months Ended

Sep. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions

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 September 30, 2011 and 2010, revenues recognized for the sale of ethanol that the Company purchased from the ethanol LLCs were $180.8 million and $118.2 million, respectively. For the nine months ended September 30, 2011 and 2010, revenues recognized for the sale of ethanol that the Company purchased from the ethanol LLCs were $507.5 million and $328.3 million, respectively. For the quarters ended September 30, 2011 and 2010, revenues recognized for the sale of corn to the ethanol LLCs under these agreements were $147.0 million and $101.2 million, respectively. For the nine months ended September 30, 2011 and 2010, revenues recognized for the sale of corn to the ethanol LLCs were $488.1 million and $296.4 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 September 30, 2011, the fair value of derivative contracts with related parties was a gross asset and liability of $4.9 million and $1.9 million, respectively.

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

(in thousands)	% ownership at September 30, 2011 (direct and	Three months ended September 30,						Nine months ended September 30,
	indirect)	2011			2010			2011		2010
The Andersons Albion Ethanol LLC	50%	$	1,190		$	(177	)	$	3,720	$	3,745
The Andersons Clymers Ethanol LLC	38%		211			(108	)		3,130		4,823
The Andersons Marathon Ethanol LLC	50%		1,868			(2,350	)		4,516		34
Lansing Trade Group, LLC	52%		6,518			1,538			18,030		6,696
Other	7%-33%		(56	)		1			93		178
Total		$	9,731		$	(1,096	)	$	29,489	$	15,476

Total distributions received from unconsolidated affiliates were $0.5 million and $15.8 million for the three and nine months ended September 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:

(in thousands)	September 30, 2011		December 31, 2010		September 30, 2010
The Andersons Albion Ethanol LLC	$	31,764	$	31,048	$	30,876
The Andersons Clymers Ethanol LLC		40,318		37,496		37,001
The Andersons Marathon Ethanol LLC		39,445		34,929		33,847
Lansing Trade Group, LLC		75,693		70,143		62,267
Other		1,898		1,733		1,430
Total	$	189,118	$	175,349	$	165,421

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”), 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 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 Condensed Consolidated Balance Sheet. The estimated fair value of the Company’s investment in IANR as of September 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 $17.3 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $1.5 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,
	2011		2010		2011		2010
Sales and service fee revenues	$	183,269	$	119,510	$	611,125	$	353,641
Purchases of product		174,864		108,233		462,988		323,304
Lease income (a)		1,445		1,413		4,112		4,232
Labor and benefits reimbursement (b)		2,730		2,654		8,114		8,053
Other expenses (c)		59		—		104		—
Accounts receivable at September 30 (d)		8,615		15,136
Accounts payable at September 30 (e)		18,857		18,229

(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.